The graph shows the output function, savings function, and depreciation function for an economy. Show what happens when the investment rate decreases by half by shifting the appropriate curve or curves in the graph.
The graph shows the output function, savings function, and depreciation function for an economy. Show what happens when the investment rate decreases by half by shifting the appropriate curve or curves in the graph.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The graph shows the output function, savings function, and
Transcribed Image Text:The graph illustrates three functions in relation to capital (K) and output (Y): the Output function, the Depreciation function, and the Savings function.
1. **Output Function** (purple line): This curve steadily increases, indicating that as capital (K) increases, output (Y) also increases. It starts at the origin (0,0) and reaches approximately (19,18).
2. **Depreciation Function** (blue line): This linear function represents how capital depreciates over time. It increases with capital but at a slower rate compared to the output function. The line begins at the origin and trends towards (18,12).
3. **Savings Function** (green line): This function shows the relationship between savings and capital. It lies between the output and depreciation lines, indicating savings enhance as capital increases, reaching roughly (18,11).
These functions demonstrate the economic concepts of output growth, capital depreciation over time, and the impact of savings in an economy. The intersections and distances between these lines help in understanding the economic equilibrium and investment sustainability.
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