If an economy wants to increase productive capacity, which condition is needed?
Answer and explanation
Correct answer: Gross investment should exceed depreciation
Productive capacity increases when the capital stock receives a net addition. Since net investment equals gross investment minus depreciation, it is positive only when gross investment exceeds depreciation. Investment then first replaces worn-out capital and also adds new machines, buildings, or equipment. If depreciation exceeds investment, the capital stock declines rather than expands.
Frequently asked questions
What is the correct answer to this question?
Gross investment should exceed depreciation
Why is this the correct answer?
Productive capacity increases when the capital stock receives a net addition. Since net investment equals gross investment minus depreciation, it is positive only when gross investment exceeds depreciation. Investment then first replaces worn-out capital and also adds new machines, buildings, or equipment. If depreciation exceeds investment, the capital stock declines rather than expands.
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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