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Using the formula for the evolution of capital, derive the function that shows the change in...

Using the formula for the evolution of capital, derive the function that shows the change in the capital stock from one period to the next. Explain in words what the equation illustrates. When will capital per worker increase (decrease) over time? When will it remain constant?

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Answer #1

Function has been derived (see in the pic) .Here, z is some constant ,you can even simply put 1 instead of z .

This equation indicates that change in capital stock per worker is equal to investment per worker- breakeven investment .Breakeven investment is the amount of investment required to keep capital stock per worker constant.

Capital per worker increase(decrease) when investment per worker is greater(lower) than (d+n)kt.

Capital per worker remains constant when investment per worker is exactly equal to (d+n)kt.

If you have any doubt , feel free to ask.

Don't forget to thumbs up , if you like the solution.

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