The efficiency of labor and the Solow model The graph below depicts an economy i

Question

The efficiency of labor and the Solow model The graph below depicts an economy in the steady state at the intersection of the green investment curve and the break-even investment line labeled B. If investment In the economy stopped, capital per effective worker would decline because of which of the following? Check all that apply. Capital stock growth Decreases in savings rates Increases in the efficiency of labor Population growth Suppose that the capital stock begins to wear down at a faster rate due to increased global temperatures that weaken machines, causing the depredation rate to increase. Assuming that population growth and the rate of labor-augmenting technological progress remain constant, which line now represents new break-even investment? B C A An increase in the rate of depreciation causes an increase a decrease in the steady state amount of capital per effective worker.

Explanation / Answer

Answer. The capital per effective worker will decline because of decrease in the saving rate and increase in popultaion growth.

The new line will be 'A', as deprectiation has increase, the line will shift up, causing the capital per worker to decline.

An increase in depreciation causes a decrease in the steady state amount of the capital per effective worker.

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