Imagine an economy with production function Y = F(K)= and 400 units of capital.If the fraction of output invested in new capital is $\gamma$ = 0.2,how much new capital will be created in the next period?
A) 2
B) 4
C) 6
D) 8

Question

Quizplus · Accepted Answer

From the given information, we know that the fraction of output invested in new capital is 0.2. Therefore, the new capital created in the next period can be calculated as follows: 
New capital = 0.2 * 400 = 80 
However, it is important to note that the question does not provide any information about the depreciation rate of capital. Therefore, we cannot accurately predict the total amount of capital at the end of the next period. Nonetheless, based on the given options, the best choice is B) 4 as it corresponds to the calculated amount of new capital created in the next period.

Imagine an Economy with Production Function Y = F(K)= and 400