if gdp is $500, the capital stock is $150, the savings rate is 20% and the rate of capital depreciation is 10%, by how m...

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if gdp is $500, the capital stock is $150, the savings rate is 20% and the rate of capital depreciation is 10%, by how m...

if gdp is $500, the capital stock is $150, the savings rate is 20% and the rate of capital depreciation is 10%, by how much will the capital stock expand next period? do you expect output to rise or fall?

business economics

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Answer 1

Answer #1

Saving rate is 20% which means $100 will be saved. This will be invested so that capital stock increases by $100 to reach $250. however capital will depreciate by 10% of its original value which is $15. Thus capital stock will decrease by $15 and the final capital stock will be $235

This indicates that net investment will be $85 which will increase the output next period. Hence output will increase by $85 next period.

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Answer 2

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if gdp is $500, the capital stock is $150, the savings rate is 20% and the rate of capital depreciation is 10%, by how m...