4.8. Exercises 1. Consider a positive capital depreciation rate 6 > 0. In this case, the asset-accumulation equation becomes Kt = (Rt 20K. + tht Ct. (421) Show that the steady-state equilibrium level of labour 1* is given by5 1* = (4.22) which continues to be independent of technology A. In other words, changes in the level of technology A do not affect the steady-state equilibrium level of labour l* even in the presence of capital depreciation. Furthermore, (4.22) shows that the steady- state equilibrium level of labour 1* is increasing in the capital depreciation rate 6 and decreasing in the discount rate ,0. Intu- itively, an increase in the capital depreciation rate 6 or a decrease in the discount rate p reduces the consumption rate C/Y, which in turn decreases leisure and increases labour