Question
With reference to the Incremental Capital Output Ratio
(ICOR), consider the following statements: 1.ICOR has evolved from the Harrod-Domar Growth Theory and examines the relationship between fresh investments and economic growth. 2.A lower ICOR signifies greater efficiency and productive use of capital. Which of the statements given above is/are not correct?Solution
ICOR Explains relationship between the level of investment made in the economy and the Subsequent increase in GDP. RELATION WITH PRODUCTION Determines a country's level of production efficiency •Lower ICOR More efficient production/capital •(implies that an economy can generate more output with a smaller increase in cap-investment)
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