To determine the change in the capital stock, the level of new investment must be adjusted for depreciation because some new investment

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Depreciation accounts for the decrease in value of existing capital due to wear and tear, obsolescence, or other factors. When new investment is made to replace the existing but worn-out capital, it does not necessarily result in an increase in the overall capital stock as it merely replaces what was already there. Therefore, to determine the actual change in the capital stock, the level of new investment must be adjusted to account for this replacement or depreciation.

To Determine the Change in the Capital Stock, the Level