How does the quantity of capital already in use affect the level of investment?
I. A greater capital stock is likely to lead to more investment since there will be more capital
To replace.
II. A greater capital stock is likely to lead to less investment because further increases in
The demand for investment raise the cost of capital.
III. For a given desired level of capital stock, the amount of investment needed to reach that
Level will be lower when the current capital stock is higher.
IV. Investment means adding new capital; the existing stock of capital does not influence
Additions to capital.

Question

Quizplus · Accepted Answer

A greater capital stock is likely to lead to more investment since there will be more capital to replace, as stated in statement I. However, statement II is incorrect as a greater capital stock does not necessarily raise the cost of capital. Statement III is true as a higher existing capital stock means a lower level of investment needed to reach a desired level. Statement IV is incorrect as adding new capital is influenced by the existing stock of capital. Therefore, only statements I and III are correct, making answer B the best choice.

How Does the Quantity of Capital Already in Use Affect