Q. The equation of capital accumulation is K' = K + I - δK, where K is the capital stock at the beginning of the year, I is the investment made during the year, δ is the depreciation rate, and K' is the capital stock at the end of the year/beginning of the next year.
a. IfK=100,δ=.1,andI=20,whatistheK'?
b. If K = 100, δ = .05, then for the capital stock at the end of the year of this economy to remain constant as the beginning of the year, how much investment is needed?