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A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. What is the economy?s capital stock at the end of the year?

Question

A small economy starts the year with 1millionincapital.Duringthecourseoftheyear,grossinvestmentis1 million in capital. During the course of the year, gross investment is 150,000 and depreciation is $50,000. What is the economy?s capital stock at the end of the year?

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Solution 1

The economy's capital stock at the end of the year can be calculated by adding the gross investment to the initial capital and then subtracting the depreciation. Here's how:

  1. Start with the initial capital: $1,000,000
  2. Add the gross investment: 1,000,000+1,000,000 + 150,000 = $1,150,000
  3. Subtract the depreciation: 1,150,000−1,150,000 - 50,000 = $1,100,000

So, the economy's capital stock at the end of the year is $1,100,000.

This problem has been solved

Solution 2

The economy's capital stock at the end of the year can be calculated by adding the gross investment to the starting capital and then subtracting the depreciation. Here's how to do it:

  1. Start with the initial capital: $1,000,000
  2. Add the gross investment: 1,000,000+1,000,000 + 150,000 = $1,150,000
  3. Subtract the depreciation: 1,150,000−1,150,000 - 50,000 = $1,100,000

So, the economy's capital stock at the end of the year is $1,100,000.

This problem has been solved

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