Contribution of Capital in Growth Assignment Example | Topics and Well Written Essays - 500 words - 1

Contribution of Capital in Growth - Assignment Example   b) In such a model, the growth rate of output is ∆y/y =(SAnd), and therefore arise in depreciation cause a reduction in an economies output and since the growth rate of capital is a function of such depreciation and since they the increase in depreciation decreases capital stock. And since consumption is relative to output a decrease in output impacts in a similar way to consumption as they are positively related. Therefore it can be seen that increase in depreciation will reduce the capital stock, in the long run, reducing capital, capital-output per worker and finally consumption.   At steady state the optimum capital is utilized and since the government takes up all the units produced. The labor force utilizes all the capital available which the government takes up as indicated by point A. Also at this point, the government saves nothing since it utilizes everything in purchasing the entire output.   b) increase in government purchases will cause an increase in productivity per worker but since the capital is a function of depreciation capital at the disposal of the workers will decrease in the long run causing a reduction in the output per worker and consequently a reduction in consumption an increase in â€Å"g† cannot even match the growth of population or labor force of an economy.