{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

PS 7 - My P Le Problem Set 7 1 a.As depreciation rate...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
My P. Le Problem Set 7 1. a.As depreciation rate increases, the depreciation per worker per year increases at any level of capital per worker. The (Depreciation per worker) line pivots upward. The economy as a whole has to spend more resources replacing the depreciated capital, leading to a lower steady state. The steady state moves to the left and K* goes down. Thus capital per worker (K/N) goes down. As capital per worker decreases, output per worker (Y/N) decreases. Because of decreasing returns to capital, the decrease in output per worker is smaller than the decrease in capital per worker. As output decreases, income decreases, thus saving decreases and S=I so I decreases. Investment per worker decreases. Consumption per worker also decreases. When depreciation rate increases, we observe the shift of the (Depreciation per worker) curve. Over time, the economy moves from Eo to E1 as K and Y decreases. During the adjustment, the decrease in s will cause negative growth in output >>> Y/N decreases >>> S/N decreases >>> K/N decreases >>> I decreases linearly >>> the gap between saving and depreciation narrows >>> Y decreases slower. When point E1 is reached, the rate of growth of Y = 0 when saving (investment) and depreciation are equal again. Rate of growth of Y/N is also 0.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern