A factory replaced an old machine and also bought one additional new machine. What is the correct meaning?
Answer and explanation
Correct answer: Net investment occurred along with replacement
Replacing the old machine restores the capital lost through depreciation and represents replacement investment. Buying an additional machine increases productive capacity beyond the previous level, so it represents positive net investment. The factory therefore has both components of gross investment. This is neither consumption nor zero investment because productive capital goods were acquired.
Frequently asked questions
What is the correct answer to this question?
Net investment occurred along with replacement
Why is this the correct answer?
Replacing the old machine restores the capital lost through depreciation and represents replacement investment. Buying an additional machine increases productive capacity beyond the previous level, so it represents positive net investment. The factory therefore has both components of gross investment. This is neither consumption nor zero investment because productive capital goods were acquired.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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