Why is depreciation deducted in net investment?
Answer and explanation
Correct answer: Because it is wear and tear of capital
Part of gross investment may merely replace machines and other capital goods that have worn out. Depreciation measures this consumption of existing fixed capital. Deducting it separates replacement spending from the genuinely new addition to the capital stock, which is net investment. Exports, tax revenue, and wages are different flows and do not explain this deduction.
Frequently asked questions
What is the correct answer to this question?
Because it is wear and tear of capital
Why is this the correct answer?
Part of gross investment may merely replace machines and other capital goods that have worn out. Depreciation measures this consumption of existing fixed capital. Deducting it separates replacement spending from the genuinely new addition to the capital stock, which is net investment. Exports, tax revenue, and wages are different flows and do not explain this deduction.
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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