Figure 14-1
-Refer to Figure 14-1. Suppose the economy is operating on curve B and there is positive depreciation to its existing capital stock. The decision to produce at point r is likely to
I. shift the production possibilities curve slowly toward curve C.
II. shift the production possibilities curve slowly toward curve A.
III. reduce the economy's capital stock.
IV. result in a negative net private investment.

Question

Figure 14-1 
-Refer to Figure 14-1. Suppose the economy is operating on curve B and there is positive depreciation to its existing capital stock. The decision to produce at point r is likely to
I. shift the production possibilities curve slowly toward curve C.
II. shift the production possibilities curve slowly toward curve A.
III. reduce the economy's capital stock.
IV. result in a negative net private investment.

Quizplus · Accepted Answer

Producing at point r on curve B, which likely indicates a high level of consumption and lower investment, would lead to a reduction in the economy's capital stock (III) due to positive depreciation not being offset by sufficient investment. This would shift the production possibilities curve toward curve A (II), indicating a decrease in future production capabilities. Additionally, this scenario would result in a negative net private investment (IV) because the depreciation exceeds the investment in capital.

Figure 14-1 -Refer to Figure 14-1. Suppose the Economy Is Operating on Is