when capital's depreciation rate increases why does output per worker declines and capital per worker declines...
when capital's depreciation rate increases why does output per worker declines and capital per worker declines in detail.
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Answer to the question:
Rise in the rate of depreciation means that more capital is required for the replacement of the old capital. So, as more and more of the capital is required for the purpose of replacement, the net addition to the capital stock become less and less. And this will cause the capital per worker to decline. On the other hand, as the capital per worker declines, the teh available capital stock per worker also declines. This will cause the production of the worker since he's getting less an less of the capital now. One more reason is that the capital is subjected to diminishing returns. When more and more capital are employed the marginal productivity of the capital falls and the productivity per worker declines.
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when capital's depreciation rate increases why does output per
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