Answer to Question #222527 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$=$ 3 PCs

Depreciation$=$ 1 PCs per year

Gross investment$=$ 3 PCs

Net investment$=$ 2 PCs

Final capital stock$=$ 5 PCs

Final capital equals to initial capital plus net investment. Net investment equals to gross investment minus depreciation