Some people argue that if machines wear out faster (i. e. the depreciation rate increases) this will create more jobs in the manufacturing industries. They conclude that countries should hope for high depreciation rates. Is this argument true or false given the predictions of the Solow model? Why?

False.

Explanation:

This is because high depreciation rates lower the capital stock and therefore lowers the output of an economy.

According to The Solow model, Countries should always hope for low depreciation rates because if the depreciation rate increases, capital level and output level both decreases

Therefore the model contradicts the idea that high Depreciation will cause creation jobs and improve economy.

Given the predictions of the Solow model, the argument that that if machines wear out faster and the depreciation rate increases, more jobs will be created in the manufacturing industries is False.

Explanation:

One of the assumptions of the Solow model is "Output is regarded as net output after making allowance for the depreciation of capital"

This implies that at the steady-state, an investment is equal to depreciation. That means that all of investment is being used just to repair and replace the existing capital stock therefore making it impossible for new capital to be generated.

If machines wear out faster and deprecation increases, output level will decrease. This will not create more jobs in the manufacturing industries due to an increment in operating expenses.

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