If gross investment is less than depreciation although new machines are purchased, what is the correct meaning?
Answer and explanation
Correct answer: New machines are not fully covering capital loss
Buying new machines makes gross investment positive, but it does not guarantee positive net investment. When gross investment is smaller than depreciation, Net investment = Gross investment − Depreciation is negative. Thus, the new machines replace only part of the capital lost through depreciation, and the total capital stock decreases. Options C and D contradict this result.
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What is the correct answer to this question?
New machines are not fully covering capital loss
Why is this the correct answer?
Buying new machines makes gross investment positive, but it does not guarantee positive net investment. When gross investment is smaller than depreciation, Net investment = Gross investment − Depreciation is negative. Thus, the new machines replace only part of the capital lost through depreciation, and the total capital stock decreases. Options C and D contradict this result.
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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