Other things held constant, an increase in depreciation will cause the capital stock to
A) decrease.
B) grow at a slower pace.
C) remain unchanged.
D) become unprofitable.

Question

Quizplus · Accepted Answer

If depreciation increases, it means that a larger portion of the investment is being used up to replace worn-out capital goods. This leaves less investment available for adding to the capital stock, meaning that the capital stock will decrease.

Other Things Held Constant, an Increase in Depreciation Will Cause