In which situation is the economy’s productive capacity likely to fall?
Answer and explanation
Correct answer: Net investment is negative
Negative net investment means that depreciation exceeds gross investment. More productive capital is being consumed than is being added, so the capital stock can shrink and productive capacity is likely to fall, other things remaining equal. Positive net investment expands capacity, while equality between gross investment and depreciation generally maintains the existing capital stock rather than reducing it.
Frequently asked questions
What is the correct answer to this question?
Net investment is negative
Why is this the correct answer?
Negative net investment means that depreciation exceeds gross investment. More productive capital is being consumed than is being added, so the capital stock can shrink and productive capacity is likely to fall, other things remaining equal. Positive net investment expands capacity, while equality between gross investment and depreciation generally maintains the existing capital stock rather than reducing it.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
