3. Suppose that the depreciation rate increases in the Solow growth model.

- Using a diagram, determine the effects of this on the quantity of capital per worker and on output per worker in the steady state.
- Explain the economic intuition behind your results.

4. Suppose that the economy is initially in a steady state and that some of the nation's capital stock is destroyed because of a natural disaster or a war.

a. Plot what happens to capital per worker and output per worker over time as a result of the natural disaster or war.
b. Determine the long-run effects of this on the quantity of capital per worker and on output per worker.

The value of one country's currency relative to the value of another country's currency is determined by the exchange rate on the global market. The graph is explained in the attachment.

The value of domestic currency will decrease as the value of the exchange rate rises, and vice versa if the exchange rate value declines.

The economic transformation is depicted in the graph below:

The per capita capital K1 and the output level Q1 represents the old steady state. if stated, if the depreciation rate rises, the individual's effective investment will decrease because the capital growth rate slows. The investment curve will shift to the left as a result.

Point A will become point B, where the steady-state equilibrium point will move, cutting the saving curve due to a decrease in investment (I2). As a result, from K1 to K2, there will be a fall in per-worker output and per-capita capital from K1 to K2.

Learn more about exchange rates here

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