Suppose that an economy with a $4 trillion dollar GDP supported by a $6 trillion dollar capital stock were at the end of two years of no real growth. If people expected the no-growth circumstance to continue and faced depreciation of 5 percent per year, then the accelerator model of investment would predict
A) gross investment equal to $300 billion supporting net investment of $0.
B) gross investment equal to $200 billion supporting net investment of $0.
C) gross investment equal to $0 supporting net investment of $300 billion.
D) gross investment equal to $0 supporting net investment of $200 billion.
E) none of the above.
Correct Answer:
Verified
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