In an economy experiencing a declining production capacity:
A)the nation's stock of capital goods is expanding.
B)net exports are necessarily zero.
C)Net Investment exceeds GDP.
D)depreciation exceeds gross investment.

Question

Quizplus · Accepted Answer

In an economy experiencing a declining production capacity, it is likely that the stock of capital goods is also declining, leading to a situation where depreciation (the decrease in the value of existing capital) exceeds gross investment (the creation of new capital). This means that net investment will be negative, and that the overall level of investment in the economy is not enough to maintain, let alone expand, the nation's production capacity. Therefore, in this situation, Option D is the correct answer.

In an Economy Experiencing a Declining Production Capacity