LO 5 Let Kt denote the quantity of capital a country has at the beginning of period t. Also, suppose that capital depreciates at a constant rate

d, so that dKt of the capital stock wears out during period t.

If investment during period t is denoted by It, and the country does not trade with the rest of the world (the current account surplus is always zero), then we can say that the quantity of capital at the beginning of period t + 1 is given by Kt+1 = (1 - d)Kt

+ It.