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Consider a country where population growth is 2% a year. An improvement in the durability of industrial machines now causes a decrease in the depreciation rate -- machines, on average, last longer than they used to. While the machines have a longer lifespan, they are not more productive (annual output per unit of capital is the same as before). Use the Solow growth model to explain clearly in words how this change in the rate of depreciation will affect the rate of growth of GDP (Y) immediately and in the years following the change. Be as precise as you can.

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Financial Management, Finance

Category:- Financial Management
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