Use the following graph to answer the next four questions.

-Suppose that the level of capital is 100,000,the depreciation rate is 5%,and investment is equal to 5,000.In this case,you would expect that:
A) real gross domestic product (GD
P) will increase.
B) real GDP will decrease.
C) real GDP will remain unchanged.
D) the steady state value of capital will increase.
E) the steady state value of capital will decrease.

Question

Use the following graph to answer the next four questions.
 
-Suppose that the level of capital is 100,000,the depreciation rate is 5%,and investment is equal to 5,000.In this case,you would expect that:
A) real gross domestic product (GD
P) will increase. 
B) real GDP will decrease. 
C) real GDP will remain unchanged. 
D) the steady state value of capital will increase. 
E) the steady state value of capital will decrease.

Quizplus · Accepted Answer

The depreciation of capital is 5% of 100,000, which is 5,000. Since investment is also 5,000, it exactly offsets the depreciation, meaning the capital stock remains unchanged, leading to no change in real GDP.

Use the Following Graph to Answer the Next Four Questions