Suppose at the beginning of year 0 that this
country has 80 units of capital. Investment expenditures are 10 units in each of years 0, 1, 2,
3, 4, . . . , 10. The capital stock depreciates by
10% per year.
(a) Calculate the quantity of capital at the beginning of years 0, 1, 2, 3, 4, . . . , 10.
(b) Repeat part (a), except assume now that
the country begins year 0 with 100 units
of capital. Explain what happens now, and
discuss your results in parts (a) and (b).