Other things held constant, an increase in depreciation will cause the capital stock to:

Question

Quizplus · Accepted Answer

Depreciation is the decrease in the value of capital goods over time due to wear and tear or obsolescence. If depreciation increases, it means that capital goods are losing their value at a faster rate. Therefore, firms will need to invest more in replacing worn-out equipment, which will lead to a decrease in the capital stock.

Other Things Held Constant, an Increase in Depreciation Will Cause