Suppose that the level of capital in the economy is 100 units,the depreciation rate is 5%,and investment is equal to 10 units.In this case:
A) the level of capital will increase.
B) the economy is in a steady state.
C) the level of capital will decrease.
D) the level of output will decrease.
E) investment is less than net investment.

Question

Quizplus · Accepted Answer

In the given scenario, the economy is not in a steady state because investment (10 units) is greater than the depreciation amount (5 units). Therefore, the level of capital will increase as new investment is adding to the existing capital stock. This will likely result in an increase in output as well.

Suppose That the Level of Capital in the Economy Is