If companies adjusted investment according to what they expected about future demand, and the anticipated demand was forthcoming, warranted growth would equal actual growth. … The result then would be a deceleration of growth. This property of Harrod’s growth model became known as Harrod’s knife-edge.

What is the knife-edge problem?

If companies adjusted investment according to what they expected about future demand, and the anticipated demand was forthcoming, warranted growth would equal actual growth. … The result then would be a deceleration of growth. This property of Harrod’s growth model became known as Harrod’s knife-edge.

Which is the knife-edge equilibrium in Harrod model?

Balance between G, Gw and Gn: Now for full-employment equilibrium growth Gn = Gw = G. But this is a knife-edge balance. For once, there is any difference between natural, warranted and actual rates of growth conditions of secular stagnation or inflation would be generated in the economy.