In year 2021 investors recognize that the depreciation rate is higher than a decade earlier. They also recognize that the actual returns to their investments in physical capital over the previous decade have consistently fallen below their expectations. As a result, from 2021 onward they shift half of their new annual investment to a distant foreign country. How will this affect the Solow diagram and long-run GDP? Also label the new steady-state GDP as point D in the diagram. The Depreciation line curve will rotate down because of the reduction in the investment rate. Hence, steady-state GDP will rise. The Investment curve will shift up because of the reduction in the investment rate. Hence, steady-state GDP will fall further. The Depreciation line curve will rotate up because of the reduction in the investment rate. Hence, steady-state GDP will fall The Investment curve will shift down because of the reduction in the investment rate. Hence, steady-state GDP will fall further. None of the other options.

In year 2021 investors recognize that the depreciation rate is higher than a decade earlier. They also recognize that the actual returns to their investments in physical capital over the previous decade have consistently fallen below their expectations. As a result, from 2021 onward they shift half of their new annual investment to a distant foreign country. How will this affect the Solow diagram and long-run GDP? Also label the new steady-state GDP as point D in the diagram. The Depreciation line curve will rotate down because of the reduction in the investment rate. Hence, steady-state GDP will rise. The Investment curve will shift up because of the reduction in the investment rate. Hence, steady-state GDP will fall further. The Depreciation line curve will rotate up because of the reduction in the investment rate. Hence, steady-state GDP will fall The Investment curve will shift down because of the reduction in the investment rate. Hence, steady-state GDP will fall further. None of the other options.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 25CTQ: Cross country comparisons of GDP per capita typically use purchasing power parity equivalent...

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