In which situation is only capital replacement happening with no new net addition?
Answer and explanation
Correct answer: Gross investment is equal to depreciation
When gross investment equals depreciation, all new investment merely replaces the capital consumed through wear and tear. The formula gives net investment = gross investment − depreciation = 0. Thus the existing capital stock is maintained but not expanded. If gross investment is greater, there is a net addition; if it is smaller, the stock may decline.
Frequently asked questions
What is the correct answer to this question?
Gross investment is equal to depreciation
Why is this the correct answer?
When gross investment equals depreciation, all new investment merely replaces the capital consumed through wear and tear. The formula gives net investment = gross investment − depreciation = 0. Thus the existing capital stock is maintained but not expanded. If gross investment is greater, there is a net addition; if it is smaller, the stock may decline.
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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