Suppose that the capital stock is equal to $500 and depreciates by 10% each year. How...
Suppose that the capital stock is equal to $500 and depreciates by 10% each year. How large will the capital stock be in two years if firms invest $60 each year?
Homework Answers
In the first year, $50 is depreciated according to the 10% depreciation rate, and $60 is invested. At the end of 1st year, capitalist ok becomes $510.
The next year has a depreciation of $51 while an investment of $60. At the end of the second year, the capital stock will be 510-51+60= $519
Therefore the capital stock will be $519 in 2 years.
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