Economy A: gross investment equals depreciation
Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation
Other things equal, the information suggests that the production capacity in economy

Question

Economy A: gross investment equals depreciation 
Economy B: depreciation exceeds gross investment
Economy C: gross investment exceeds depreciation
Other things equal, the information suggests that the production capacity in economy

Quizplus · Accepted Answer

In Economy C, where gross investment exceeds depreciation, the production capacity is increasing because new investments are not only replacing depreciated assets but also adding to the existing capital stock. In contrast, in Economy B, where depreciation exceeds gross investment, the production capacity is likely decreasing because not all depreciated assets are being replaced, leading to a net reduction in capital stock. Economy A, where gross investment equals depreciation, maintains its production capacity but does not grow. Therefore, Economy C is growing more rapidly than Economy B in terms of production capacity.

Economy A: Gross Investment Equals Depreciation