Use the following graph to answer the next four questions.

-Suppose that the level of capital is 150,000,the depreciation rate is 20%,and investment is equal to 40,000.In this case,you would expect that:
A) capital will increase.
B) capital will decrease.
C) capital will remain unchanged.
D) the steady state value of output will decrease.
E) the economy is in a steady state.

Question

Use the following graph to answer the next four questions.
 
-Suppose that the level of capital is 150,000,the depreciation rate is 20%,and investment is equal to 40,000.In this case,you would expect that:
A) capital will increase. 
B) capital will decrease. 
C) capital will remain unchanged. 
D) the steady state value of output will decrease. 
E) the economy is in a steady state.

Quizplus · Accepted Answer

Since the level of investment (40,000) is greater than the depreciation rate (20% of 150,000 = 30,000), the net investment (investment – depreciation) is positive (40,000 – 30,000 = 10,000). This positive net investment will increase the level of capital.

Use the Following Graph to Answer the Next Four Questions