If gross investment is 90 crore and depreciation is 140 crore, what signal is given about capital stock?
Answer and explanation
Correct answer: Capital stock may fall
Calculate net investment as gross investment minus depreciation: 90 − 140 = −50 crore. The negative result means that investment did not replace all the capital consumed during the period. Consequently, the capital stock may fall by 50 crore, subject to the figures being measured for the same period. Equal amounts would maintain capital, while a larger gross investment would increase it.
Frequently asked questions
What is the correct answer to this question?
Capital stock may fall
Why is this the correct answer?
Calculate net investment as gross investment minus depreciation: 90 − 140 = −50 crore. The negative result means that investment did not replace all the capital consumed during the period. Consequently, the capital stock may fall by 50 crore, subject to the figures being measured for the same period. Equal amounts would maintain capital, while a larger gross investment would increase it.
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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