The following graph shows an economy that is at the steady-state capital€“labor ratio. Suppose that an increase in the rate at which capital depreciates causes the break-even investment line to become steeper, as shown.

a. How will the steady-state capital€“labor ratio and real GDP per hour worked change?
b. Carefully describe the path that the economy will take to reach the new steady state.

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Production, y Break-even investment Investment, sy Capital-labor ratio, k