Scenario: The depreciation rate of physical capital in an economy is 10 percent. The investment on physical capital in the current year is $500.
-Refer to the scenario above.What is the current value of the physical capital stock in the economy if the physical capital stock in the last year was $1,000?

Question

Quizplus · Accepted Answer

The depreciation of the physical capital stock is 10% of $1,000, which is $100. The net addition to the capital stock is $500 (investment) - $100 (depreciation) = $400. Therefore, the current value of the physical capital stock is $1,000 + $400 = $1,400.

Scenario: the Depreciation Rate of Physical Capital in an Economy