If gross investment is 90 and depreciation is 30, what will net investment and the capital effect be?
Answer and explanation
Correct answer: 60 and the capital stock will increase
Apply the formula Net investment = Gross investment − Depreciation. Thus, net investment = 90 − 30 = 60. Because the result is positive, gross investment first replaces the 30 units of capital lost through depreciation and then adds a further 60 units to the capital stock. Equal amounts would produce zero net investment, while greater depreciation would produce a negative result.
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What is the correct answer to this question?
60 and the capital stock will increase
Why is this the correct answer?
Apply the formula Net investment = Gross investment − Depreciation. Thus, net investment = 90 − 30 = 60. Because the result is positive, gross investment first replaces the 30 units of capital lost through depreciation and then adds a further 60 units to the capital stock. Equal amounts would produce zero net investment, while greater depreciation would produce a negative 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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