Question

Suppose an economy starts the year with $100 million in capital, and during the course of a year, it adds $20 million of gross investment. Economists estimate that the depreciation rate for this economy is 9% per year. Instructions: Enter your answers as a whole number. a. Calculate depreciation and net investment for this economy. Depreciation: $ 9 million Net investment: $ 11 million b. Now calculate the amount of next year's beginning capital stock for this economy. $ 11 million

Answer 1

$9 million, $11 million and $111 million

Step-by-step explanation:

The computation is shown below

(a) For depreciation, it is

= Initial amount × depreciation rate

= $100 million × 9%

= $9 million.

Now

Net Investment is

= Gross investment - Depreciation

= $20 million - $9 million

= $11 million

(b) And, the amount of next year's beginning capital stock is

= Initial capital stock + gross investment - depreciation.

= $100 million + $20 million - $9 million

= $111 million

We simply applied the above formulas