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Logarithms

If a country ...

Question

If a country desires to grow its GDP at 10% and its ICOR is 2.6, then what should be its Capital formation?

A

10% p.a.

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B

26% p.a

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C

12.6% p.a.

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D

None of the above

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Solution

The correct option is B 26% p.a
ICOR stands for Incremental capital output ratio. It is measured by the following formula.
ICOR = annual investment/ Annual increase in GDP
2.6 = X/ 0.10
X = 2.6*0.10 = 26%.

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