(Exhibit: Capital-Labour Ratio and the Steady State)In this graph,capital-labour ratio k₂ is not the steady-state capital-labour ratio because:

Question

Quizplus · Accepted Answer

The steady state is where investment equals depreciation, therefore the capital stock remains constant. In this case, we can see that depreciation is greater than gross investment, meaning that the capital stock is shrinking rather than remaining constant. Therefore, the capital-labour ratio at this point cannot be the steady-state ratio.

(Exhibit: Capital-Labour Ratio and the Steady State)In This Graph,capital-Labour Ratio