If a student says gross investment always increases capital stock, what is the correct correction?
Answer and explanation
Correct answer: It is true only when gross investment exceeds depreciation
Gross investment includes spending that merely replaces depreciated capital, so it does not always expand the capital stock. Capital increases only when gross investment exceeds depreciation and net investment is positive. If the two are equal, capital is maintained; if depreciation is greater, net investment is negative and capital may fall. Therefore, option A correctly qualifies the statement.
Frequently asked questions
What is the correct answer to this question?
It is true only when gross investment exceeds depreciation
Why is this the correct answer?
Gross investment includes spending that merely replaces depreciated capital, so it does not always expand the capital stock. Capital increases only when gross investment exceeds depreciation and net investment is positive. If the two are equal, capital is maintained; if depreciation is greater, net investment is negative and capital may fall. Therefore, option A correctly qualifies the statement.
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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