Answer to Question #222525 in Macroeconomics for Myles

Question

Regina owns a tax accounting business that has 3 PCs. One PC wears out each year and is replaced. In addition, this year Jeannie will expand her business to 5 PCs. Calculate Jeannie’s initial capital stock, depreciation, gross investment, net investment, and final capital stock

Answer 1

Initial capital stock is 3 PCs, depreciation is 1 PC per year, gross investment is 3 PCs, net investment is 2 PCs,and final capital stock is 5 PCs. To get final capital stock equals to initial capital stock plus net investment. Net investment equals gross investment minus depreciation.