Question

Which of the following is true about the stock of capital in the economy?(A) Investment and depreciation generally cause the stock of capital to decrease.(B) Investment and generally cause the stock of capital to increase and depreciation causes the stock of capital to decrease.(C) Intermediate goods generally cause the stock of capital to increase and depreciation causes the stock of capital to decrease.(D) Intermediate goods and depreciation generally cause the stock of capital to decrease.

Answer 1

Statement B

Step-by-step explanation:

Stock of capital is the initial assets bought in the business, to run the business as generally includes cash, land and building etc:

When we make any investment, cash is spent for such investment, but investment is also an asset, thus there is an out-flow of cash with the same amount of inflow as investment, which will provided incremental returns in he form of dividend, interest, rent, etc:

Thus, investments in the form of returns will increase stock of capital, and

Depreciation on the other hand decreases the value of assets, and on the other hand decreases the value of capital.

Therefore, Statement B is correct.