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Consider the Solow growth model with concave production function as studied in class. Suppose the economy is initially in the picture below, and currently has
Consider the Solow growth model with concave production function as studied in class. Suppose the economy is initially in the picture below, and currently has the level of capital stock of K0. What would happen to the dynamics of capital accumulations when depreciation rate increases? Graphically denote the direction and the speed of change/accumulation/decumulation of the capital stock, then verbally explain why they move like so. (Hint: Try erasing the Old Depreciation line and see what happens to K0)
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