Suppose the economy is initially in the steady state.A reduction in the depreciation rate (δ)will cause
A)an increase in K / N.
B)an increase in the growth rate in the long run.
C)a reduction in C / N.
D)all of the above

Question

Quizplus · Accepted Answer

A reduction in the depreciation rate (δ) will cause an increase in the capital stock per worker (K/N) in the long run. This is because with lower depreciation, each unit of capital is being "used up" at a slower rate, so more of it can be used to produce output in the future. However, it will not necessarily lead to an increase in the growth rate (B) or a reduction in consumption per worker (C).

Suppose the Economy Is Initially in the Steady State