Consider the following Neoclassical growth model. Capital depreciates at an annual rate of 25% and population grows at an annual rate of 5%. There is noproductivity growth. The economy saves 10% of its income. Currently, each worker uses $2000 of capital and produces $5000 of output. We can conclude that the amount of investment per worker needed to break-even is ___ and capital per worker will __ from this year to the next.

(A) $600; decrease by $100.

(B) $600; increase by $100.

(C) $500; decrease by $100.

(D) $500; increase by $100

I know the correct answer is A, but I have no idea why, can someone explain this question in graph please?

Don't have to use graph to explain

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The detailed answer for the above question is provided below Understanding the Neoclassical Growth Model and the breakeven investment level The Neocla... View the full answer