If gross investment in an economy is 800 and depreciation is 750, what will be the effect on the capital stock?
Answer and explanation
Correct answer: Capital stock will have a net increase of 50
The change in capital stock is measured by net investment. Net investment = Gross investment − Depreciation = 800 − 750 = 50. Since the result is positive, investment replaces the depreciated capital and adds 50 extra units to the capital stock. If the two amounts were equal, the stock would remain constant; a larger depreciation would cause a fall.
Frequently asked questions
What is the correct answer to this question?
Capital stock will have a net increase of 50
Why is this the correct answer?
The change in capital stock is measured by net investment. Net investment = Gross investment − Depreciation = 800 − 750 = 50. Since the result is positive, investment replaces the depreciated capital and adds 50 extra units to the capital stock. If the two amounts were equal, the stock would remain constant; a larger depreciation would cause a fall.
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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