Scenario: Kenya's economy is in steady-state equilibrium. It has capital stock valued at $48 billion and GDP valued at $60 billion.
-Refer to the scenario above.If the saving rate in Kenya is 10 percent,what must be the depreciation rate in Kenya?

Question

Quizplus · Accepted Answer

In a steady-state equilibrium, the level of capital stock remains constant over time. This means that investment must be equal to depreciation. We can calculate the level of investment as the saving rate multiplied by GDP:

Investment = 0.10 x $60 billion = $6 billion

Since the capital stock is valued at $48 billion, the depreciation rate must be:

Depreciation Rate = Depreciation / Capital Stock

Depreciation = Investment = $6 billion

Depreciation Rate = $6 billion / $48 billion = 0.125 or 12.5 percent.

Therefore, choice C is the correct answer.

Scenario: Kenya's Economy Is in Steady-State Equilibrium