B) 720 units 91 740 units D) 900 units Consider a small country with a capital s

Question

B) 720 units 91 740 units D) 900 units Consider a small country with a capital stock equal to 900 units. This year it produced 20 units of new capital goods, with a depreciation rate of 10% and a production function of Y K1. If there is no technological advancement, what will the growth rate in this country be over the next year? A) ?.13% B) ?.97% C) 2.4% D) 10% 81. ?% 82. All else equal, an increase in savings will cause investment to: ncrease. B) decrease. C) remain unchanged. D) first increase and then decrease.

Explanation / Answer

Given Capital Stock of the country (K ) = 900 units

Now, amount of new capital goods produced this year = 20 units

Now, New capital stock of the country ( Kn ) = 900+ 20 = 920 units

Given, Depreciation rate = 10%

Now, Capital Stock at the end of year = 900 + (20*0.9) = 918 units

Given at the beginning of the year, Capital Stock = 900 units

So, production of units or Y at the beginning of the year (Y) = K1/2 = 9000.5 = 30 units

Now, production of units or Y at the end of year (Yn) = K1/2 = 9180.5 = 30.29 units

The rate of Growth = Y with increase capital at the end of the year / Y at the beginning of the year

= (0.29 / 30) * 100 = 0.97%

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