If depreciation is overestimated, what will be the effect on net investment?
Answer and explanation
Correct answer: Net investment may appear lower
Net investment is calculated by subtracting depreciation from gross investment. If depreciation is estimated above its actual amount while gross investment is unchanged, too much is deducted and measured net investment becomes artificially low. This can make capital accumulation appear weaker than it is. Overestimating depreciation does not increase gross investment or make depreciation zero.
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What is the correct answer to this question?
Net investment may appear lower
Why is this the correct answer?
Net investment is calculated by subtracting depreciation from gross investment. If depreciation is estimated above its actual amount while gross investment is unchanged, too much is deducted and measured net investment becomes artificially low. This can make capital accumulation appear weaker than it is. Overestimating depreciation does not increase gross investment or make depreciation zero.
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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