Question

Suppose the depreciation rate of capital decreased at time t* permanently. How would this affect real wage rate, real rental rate, real interest rate and price level in long run and very-long run in a closed market economy?

Answer 1

If the depreciation rate of capital decreased at time t* permanently, then the real wage rate would increase, real rental rate would decrease, real interest rate would decrease and price level would increase in long run and very-long run in a closed market economy.