If gross investment is 30 and depreciation is 90, what will net investment and the capital effect be?
Answer and explanation
Correct answer: Negative 60 and a fall in capital
Net investment = Gross investment − Depreciation = 30 − 90 = −60. Depreciation exceeds gross investment by 60, so the new investment cannot fully replace the capital that has been consumed. As a result, the capital stock falls by 60. Net investment would be zero only if the two amounts were equal, and it would be positive only if gross investment were larger.
Frequently asked questions
What is the correct answer to this question?
Negative 60 and a fall in capital
Why is this the correct answer?
Net investment = Gross investment − Depreciation = 30 − 90 = −60. Depreciation exceeds gross investment by 60, so the new investment cannot fully replace the capital that has been consumed. As a result, the capital stock falls by 60. Net investment would be zero only if the two amounts were equal, and it would be positive only if gross investment were larger.
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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