Question

A small economy starts the year with $3,500,000 in capital. During the course of the year, gross investment is $300,000 and depreciation is $150,000. How big is the economy’s stock of capital at the end of the year?

a. $3,650,000b. $3,800,000c. $3,950,000d. $3,850,000

Answer 1

correct option is a. $3,650,000

Step-by-step explanation:

given data

Beginning capital = $3,500,000

Gross investment = $300,000

Depreciation = $150,000

solution

we get here first Net investment that is express as

Net investment = Gross investment - Depreciation ...............1

put here value and we get

Net investment = $300,000 - $150,000

Net investment = $150,000

and

Economy stock of capital at the end of the year will be as

Economy stock of capital = Beginning capital + Net investment

Economy stock of capital = $3,500,000 + $150,000

Economy stock of capital = $3,650,000

so correct option is a. $3,650,000