If the economyʹs capital stock decreases over time,

Question

Quizplus · Accepted Answer

When the economy's capital stock decreases over time, it means that the value of its existing capital goods is decreasing due to depreciation. If the depreciation of the capital stock exceeds gross investment (i.e. the economy's investment in new capital goods), then the net investment for the economy would be negative. This would indicate that the economy is not generating enough new capital to replace what is being depreciated, which is not sustainable in the long term. Therefore, choice A is the correct answer.

If the Economyʹs Capital Stock Decreases Over Time