An island nation is in a steady state.A major hurricane passes over the nation and destroys 25 percent of the physical capital.In the years that follow the storm,one would expect investment to ________ and net investment to ________.
A) decrease; decrease
B) increase; increase
C) decrease; increase
D) increase; decrease
E) decrease; remain the same

Question

Quizplus · Accepted Answer

After the destruction of physical capital, the nation will likely increase investment to replace and rebuild the lost capital. As a result, net investment, which is the difference between gross investment and depreciation, will also increase as the nation works to restore its capital stock.

An Island Nation Is in a Steady State