Final answer:
The Harrod-Domar model indicates that economic growth is determined by the savings rate and the capital-output ratio, as they drive investment in capital goods and output increases.
Step-by-step explanation:
According to the Harrod-Domar model, the rate of economic growth is determined by the savings rate and capital-output ratio. This model postulates that economic growth is driven by the level of savings and the productivity of capital investment. The savings provide the necessary funds for investment in capital goods, which in turn leads to an increase in output. The model assumes a fixed capital-output ratio, which reflects the amount of capital needed to produce one unit of output. Essentially, higher savings allow for more investment in capital, potentially leading to higher economic growth if the capital is productive.
Fiscal policy, technological progress, and other factors like human capital, of course, also influence economic growth, but they are not the determinants specified by the Harrod-Domar model. Most modern economists agree that sustainable economic growth comes from a combination of factors, including investment in physical capital, human capital, and technology, all interacting in a market-driven economy. This is further enhanced by policies such as fiscal policy that can increase investment and monetary policy aimed at maintaining stability.