In an economy that is experiencing a shrinking production capacity:
A) Gross domestic investment is negative
B) Net private domestic investment is zero
C) Depreciation is negative
D) Depreciation exceeds gross investment

Question

Quizplus · Accepted Answer

If the production capacity of an economy is shrinking, it means that the assets used in production are becoming less efficient or wearing out faster. This results in higher depreciation costs. If the gross investment is less than the depreciation, it means that the economy is not investing enough to maintain its existing capital stock and production capacity is shrinking. Therefore, option D is the best choice.

In an Economy That Is Experiencing a Shrinking Production Capacity