Which formula correctly gives net investment from gross investment and depreciation?
Answer and explanation
Correct answer: Net Investment = Gross Investment − Depreciation
Gross investment includes investment that replaces depreciated capital as well as investment that adds to the capital stock. Since depreciation represents capital already used up, it must be deducted to find the net addition. Therefore, Net investment = Gross investment − Depreciation. Adding depreciation would incorrectly count replacement of lost capital as a new increase.
Frequently asked questions
What is the correct answer to this question?
Net Investment = Gross Investment − Depreciation
Why is this the correct answer?
Gross investment includes investment that replaces depreciated capital as well as investment that adds to the capital stock. Since depreciation represents capital already used up, it must be deducted to find the net addition. Therefore, Net investment = Gross investment − Depreciation. Adding depreciation would incorrectly count replacement of lost capital as a new increase.
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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