Asked by Diedre McCoy on Jun 29, 2024
Verified
If depreciation exceeds gross investment,we can say that
A) the economy's stock of capital may be either growing or shrinking.
B) the economy's stock of capital is shrinking.
C) the economy's stock of capital is growing.
D) net investment is zero.
E) net investment is positive.
Depreciation
The measure of wearing out, consuming, or other loss of value of a depreciable asset arising from use, passage of time, or obsolescence through technology and market changes.
Gross Investment
The total amount spent on purchases of new capital and on replacing depreciated capital within a given period.
Capital Stock
Capital stock is the total amount of physical, non-consumable goods, or financial assets that a company uses for production of goods or services, including buildings, machinery, and equipment.
- Examine how depreciation and net investment are interrelated and the consequences of this relationship for the economy.
Verified Answer
SJ
Sonet JacksiJun 30, 2024
Final Answer :
B
Explanation :
Depreciation represents the amount of capital that wears out or becomes obsolete in a given period. Gross investment represents the amount of resources devoted to increasing the capital stock. If depreciation exceeds gross investment, it means that the economy is investing less in new capital goods than the amount of capital that is being consumed or becoming obsolete. Therefore, the stock of capital is shrinking.
Learning Objectives
- Examine how depreciation and net investment are interrelated and the consequences of this relationship for the economy.