Answer :
In the Solow growth model, an increase in the depreciation rate, holding everything additional constant, leads to C) a decrease in the capital stock per worker at the new steady state.
This is because the depreciation rate represents the quantum of capital that wears out and needs to be substituted each period. As the depreciation rate increases, a considerable portion of the frugality's investment is used to replace worn-out capital, leaving less accessible for investment in new capital. This leads to a lower position of capital per worker in the new steady state.
The effect on affair per worker is nebulous, as it depends on the relative magnitude of the drop in the capital stock per worker and the increase in the deprecation rate. still, it's clear that the increase in the depreciation rate will lead to a lower position of capital per worker and therefore a implicit decrease in output per worker.
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In the Solow growth model, depreciation refers to the wear and tear on capital goods over time.
c. a decrease in output per worker
When the depreciation rate increases, it means that a larger portion of the capital stock is being depleted or lost, which reduces the amount of capital available for production. Holding everything else constant, this leads to a decrease in the capital stock per worker in the new steady state.
According to the Solow growth model, an economy reaches a steady state where the capital stock per worker, output per worker, and consumption per worker remain constant over time. Therefore, a decrease in the capital stock per worker would result in a decrease in output per worker, as there is less capital available for production. This is why the correct answer is option (c) - a decrease in output per worker.
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