Question

In the short run, if the stock of capital _____there will be more depreciation

declines

remains stable

grows

all above

Answer 1

Answer 1 :- Option 'a' is the correct Answer

In the short run, if the stock of capital declines there will be more depreciation.

There are basically two forces that influence capital stock.

(1) Investment :- Expenditure on new plant and equipment, it causes the capital stock to rise.

(2) Depreciation :- Wearing out of old capital; it causes the capital stock to fall. The fraction of capital that wears out each year is denoted by δ. This is the depreciation rate.

Thus, the amount of capital that depreciates each year is δk.