Use the following graph to answer the following questions.

-Suppose that the level of capital is 150,000,the depreciation rate is 20 percent,and investment is equal to 40,000.In this case,you would expect that
A) capital will increase.
B) capital will decrease.
C) capital will remain unchanged.
D) the steady state value of output will decrease.
E) the economy is in a steady state.

Question

Use the following graph to answer the following questions.
 
-Suppose that the level of capital is 150,000,the depreciation rate is 20 percent,and investment is equal to 40,000.In this case,you would expect that
A) capital will increase. 
B) capital will decrease. 
C) capital will remain unchanged. 
D) the steady state value of output will decrease. 
E) the economy is in a steady state.

Quizplus · Accepted Answer

From the graph, we can see that the investment line intersects the 45 degree line to the right of the depreciation line. This means that in the long run, capital will increase. Therefore, with an investment of 40,000 and a depreciation rate of 20 percent, we would expect capital to increase.

Use the Following Graph to Answer the Following Questions