Question

1. In 2010, Depreciation was $ 1768 billion and Gross Investment was $ 1734 billion. A....

1. In 2010, Depreciation was $ 1768 billion and Gross Investment was $ 1734 billion.

A. Calculate Net Investment for 2010.

B. What happened to the capital stock of the US in 2010?

C. Discuss the impact this might have on our prospects for long term growth.

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Answer #1

a) Net investment = Gross investment - Depreciation = 1734 - 1768 = -34 billion

b) Since depreciation is greater than investment, addition made to capital stock is less than its wearing and tearing so capital stock is reducing

c) If this continues for a long period it will gradually reduce the entire capital stock of the nation. Capital accumulation is necessary for economic growth as it is an important determinant of productivity. With reduced productivity, the nation's growth may retard in the long run.

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