The following figure shows the production function and the relationship between investment and physical capital stock for a given saving rate.

-Refer to the figure above.If the physical capital stock is fixed at $300,the aggregate investment in this economy will equal ________.

Question

The following figure shows the production function and the relationship between investment and physical capital stock for a given saving rate.
 
-Refer to the figure above.If the physical capital stock is fixed at $300,the aggregate investment in this economy will equal ________.

Quizplus · Accepted Answer

The aggregate investment is equal to the depreciation plus the net investment. The depreciation is equal to the physical capital stock multiplied by the depreciation rate, which is 10%. The net investment is equal to the change in the physical capital stock, which is $1,000. Therefore, the aggregate investment is equal to $300 * 0.1 + $1,000 = $4,000.

The Following Figure Shows the Production Function and the Relationship