For any economy with an existing capital stock of $800 million and annual depreciation of 5%,a steady state occurs if

Question

Quizplus · Accepted Answer

In a steady state, net investment is equal to 0. Therefore, gross investment must equal depreciation in order to maintain the capital stock. Annual depreciation is 5% of $800 million or $40 million. Therefore, gross investment must also be $40 million in order to maintain the capital stock and achieve a steady state. Option C is the only choice that satisfies this condition.

For Any Economy with an Existing Capital Stock of $800