DOMAR GROWTH MODEL The framework The basic premises of the Domar model are as follows 1. Any change in the rate of investment flow per year I(t) will produce a dual effect: it will affect the aggregate demand as well as the productive capacity of the economy 2. The demand effect of a change in I(t)operates through the multiplier process, assumed to work instantaneously. Thus an increase in I(t) will raise the rate of income flow per year Y(t by a multiple of the increment in I(t). The multiplier is k=1/s where s stands for the given(constant)marginal propensity to save. On the assumption that 1(t) is the only(parametric) expenditure flow that influences the rate of income flow, we can then state thatDOMAR GROWTH MODEL The Framework The basic premises of the Domar model are as follows: 1. Any change in the rate of investment flow per year I(t) will produce a dual effect: it will affect the aggregate demand as well as the productive capacity of the economy. 2. The demand effect of a change in I(t) operates through the multiplier process, assumed to work instantaneously. Thus an increase in I(t) will raise the rate of income flow per year Y(t) by a multiple of the increment in I(t). The multiplier is k=1/s, where s stands for the given (constant) marginal propensity to save. On the assumption that I(t) is the only (parametric) expenditure flow that influences the rate of income flow, we can then state that