Suppose that the value of the capital stock in the economy is $150 million. If i

Question

Suppose that the value of the capital stock in the economy is $150 million. If investment is equal to zero, then output will remain at its current level. the capital stock will decline in value but output will remain the same. the capital stock will decline in value and output will move down along the production function to a new lower level of output. the capital stock will decline in value and the production function will shift down as output falls. firms will hire more labor to compensate for the lack of investment and output will remain the same.

Explanation / Answer

Ans) the correct option is - the capital stock will decline in value and output will move down along the production function to a new lower level of output. Investment is zero but capital stock will depreciate over time which reduces the value of capital and output depends on capital. Decrease in capital will decrease in output.

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