In an economy, gross investment is 600 and depreciation is 650. What does net investment mean?
Answer and explanation
Correct answer: Net fall in capital stock by 50
Net investment = Gross investment − Depreciation = 600 − 650 = −50. The negative sign shows that gross investment was insufficient to replace all the capital consumed through depreciation. Hence, the capital stock falls by 50. A positive change would require gross investment to exceed depreciation, while equality would leave the stock unchanged.
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What is the correct answer to this question?
Net fall in capital stock by 50
Why is this the correct answer?
Net investment = Gross investment − Depreciation = 600 − 650 = −50. The negative sign shows that gross investment was insufficient to replace all the capital consumed through depreciation. Hence, the capital stock falls by 50. A positive change would require gross investment to exceed depreciation, while equality would leave the stock unchanged.
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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