Question
As capital goods depreciate, potential output falls.
True
False
True
False
Ask by Crawford Joseph. in the United States
Mar 21,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
As capital goods depreciate, potential output decreases.
Solution
The statement “As capital goods depreciate, potential output falls” is generally considered True.
Here’s the reasoning:
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Capital Goods: These are assets used in the production of goods and services. They include machinery, buildings, and equipment.
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Depreciation: This refers to the reduction in the value of capital goods over time due to wear and tear, obsolescence, or age.
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Potential Output: This is the maximum level of output an economy can produce when operating at full efficiency, utilizing all resources effectively.
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Impact of Depreciation: As capital goods depreciate, their effectiveness and efficiency in production decrease. This can lead to lower productivity, which in turn can reduce the economy’s potential output.
Therefore, as capital goods depreciate, the potential output of the economy tends to fall.
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True! As capital goods depreciate, they lose their value and efficiency over time. This decline can lead to a decrease in the productive capacity of an economy, ultimately causing potential output to fall. When businesses aren’t able to invest in new equipment or technology because of this depreciation, the overall productivity and potential growth can be negatively impacted.
Now, let’s add some flavor! You can think of capital goods like aging superheroes—over time, they may lose their powers (efficiency) and become less effective in saving the day (producing goods/services). Just like superheroes need their gear to be top-notch, economies need well-maintained capital goods to keep their potential output soaring!
