Question 6. Consider an economy which is hit by a permanent shock to the depreciation rate,...

 

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Question 6. Consider an economy which is hit by a permanent shock to the depreciation rate, 8, which rises from 81 to 82 > 8₁. What is the impact on steady state consumption and capital? Use the phasediagram to illustrate the effect. Explain. Question 6. Consider an economy which is hit by a permanent shock to the depreciation rate, 8, which rises from 81 to 82 > 8₁. What is the impact on steady state consumption and capital? Use the phasediagram to illustrate the effect. Explain.

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In an economic model where capital depreciates over time an increase in the depreciation rate delta will have an impact on both the steadystate level ... View the full answer