Suppose the economy is initially in the steady state.An increase in the depreciation rate (δ)will cause
A)a reduction in K / N.
B)a reduction in Y / N.
C)a reduction in C / N.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

An increase in the depreciation rate (δ) will reduce the capital stock (K) at a faster rate, which reduces K/N. This, in turn, reduces the output per capita (Y/N) and hence consumption per capita (C/N). Therefore, all of the above statements are correct.

Suppose the Economy Is Initially in the Steady State