Explain the relationship among the capital stock, gross ...

[ts19998]

Explain the relationship among the capital stock, gross investment, net investment, and depreciation.
 
  What will be an ideal response?

Question 2

If the price level for the last three months has been 112, 125, and 126, we would say
 
  A) inflation has been constant over the three months.
  B) inflation was more rapid between the first and second month than between the second and third month.
  C) inflation was less rapid between the first and second month than between the second and third month.
  D) inflation has steadily increased over the three months.

[shaikhs]

Answer to Question 1

The capital stock is the total quantity of plant, equipment, buildings and inventories. Some of this capital stock is always depreciating or wearing out. During a year a firm will purchase new capital. The amount of capital purchased is gross investment. The amount of gross investment minus the amount of depreciation during a year is net investment. So net investment is the change in the capital stock from one period to the next.

Answer to Question 2

B