Question

A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. How big is the economy’s stock of capital at the end of the year? $1,000,000 $1,150,000 $850,000 $800,000 $1,100,000

Answer 1

$1,100,000

Step-by-step explanation:

Given that,

Beginning capital = $1,000,000

Gross investment = $150,000

Depreciation = $50,000

Net investment = Gross investment - Depreciation

= $150,000 - $50,000

= $100,000

Therefore,

Economy’s stock of capital at the end of the year:

= Beginning capital + Net investment

= $1,000,000 + $100,000

= $1,100,000