Gross investment and depreciation

Correct answer: B. Gross investment 100 and depreciation 100

Explanation: The relation is Net Investment = Gross Investment − Depreciation. In option B, the calculation is 100 − 100 = 0, so there is no net addition to the capital stock. Option A gives 20, option C gives 80, and option D gives 100 as net investment. Thus only equal gross investment and depreciation produce zero net investment.

Correct answer: A. Net investment 70 and depreciation 30, so gross investment 100

Explanation: Gross investment includes both replacement investment needed to cover depreciation and net investment that adds to the capital stock. Therefore, Gross Investment = Net Investment + Depreciation. Substituting the figures gives 70 + 30 = 100. The other figures either subtract depreciation incorrectly or ignore one component, so they do not represent gross investment.

Correct answer: A. Gross investment 50 and depreciation 50

Explanation: Use Net Investment = Gross Investment − Depreciation. In option A, gross investment is 50, which is positive, while net investment is 50 − 50 = 0. The investment exactly replaces the capital lost through depreciation. Option B produces positive net investment, option C produces negative net investment, and option D has no positive gross investment.

Correct answer: A. Net investment is zero

Explanation: When depreciation is equal to gross investment, the formula gives Net Investment = Gross Investment − Depreciation = 0. In this case, all investment is used to replace capital that has worn out or become obsolete. There is no remaining amount for expanding the capital stock. Therefore net investment is zero, not positive, even though gross investment may be positive.

Correct answer: A. Half of gross investment

Explanation: Let gross investment be G. If depreciation is half of it, depreciation is G/2. Applying the formula gives net investment = G − G/2 = G/2. Thus net investment equals the other half of gross investment and is also equal in amount to depreciation. It is positive when gross investment is positive, unlike the negative or zero suggestions in the distractors.

Correct answer: B. Equal to their sum and positive

Explanation: The accounting identity is Gross Investment = Net Investment + Depreciation. Since both components are positive, their sum must also be positive and greater than either component considered separately. Therefore option B is correct. Gross investment cannot be zero or negative under these conditions, and it is not less than both positive components.

Correct answer: A. Depreciation is a flow that reduces capital stock

Explanation: Depreciation measures the loss of value or productive capacity of fixed capital during a period because of wear, use, or obsolescence. It is recorded as a flow and reduces the existing capital stock. Investment can offset this reduction, but depreciation itself does not increase capital. It is also unrelated to the purchase of current consumption goods.

Correct answer: A. Depreciation is zero

Explanation: From Gross Investment = Net Investment + Depreciation, subtracting net investment from both sides gives Depreciation = Gross Investment − Net Investment. If gross and net investment are equal, their difference is zero, so depreciation must be zero. This conclusion does not require gross investment itself to be zero; it may be any equal positive amount when no depreciation is recorded.

Correct answer: B. Capital replacement only

Explanation: Calculate net investment as 35 − 35 = 0. Since gross investment exactly equals depreciation, the investment replaces the capital that has worn out but creates no additional net capital. This is capital replacement or maintenance, not expansion. Net capital decumulation would require depreciation to exceed gross investment, and gross investment itself is clearly not zero.

Correct answer: B. Depreciation

Explanation: Using Net Investment = Gross Investment − Depreciation, set net investment equal to zero: 0 = Gross Investment − Depreciation. Rearranging gives Gross Investment = Depreciation. This means investment only replaces the capital consumed through wear and obsolescence. Consumption, national income, and exports are different aggregates and do not follow from this identity.

Correct answer: C. Zero net investment

Explanation: Zero net investment means gross investment is exactly equal to depreciation. The economy replaces worn-out or obsolete capital, so the existing productive capacity is maintained, but no additional net capital is created. Positive net investment would expand capacity. Negative net investment means depreciation is not fully replaced and productive capacity tends to decline, so it does not describe mere maintenance.

Correct answer: C. Negative

Explanation: Use Net Investment = Gross Investment − Depreciation. When gross investment is 0 and depreciation is a positive amount, the result is 0 − a positive amount, which is negative. This means the economy is losing capital because no new investment replaces the capital consumed during the period. It cannot be zero or positive unless depreciation were also zero or were fully covered.

Correct answer: B. 300 / Three hundred

Explanation: Capital expansion is represented by positive net investment, which is calculated after removing the amount needed to replace depreciated capital. Thus, Net Investment = Gross Investment − Depreciation = 500 − 200 = 300. The amount 200 is only the replacement requirement, while 500 is the total gross investment. Adding the figures would incorrectly count replacement twice.

Correct answer: C. Gross investment 120 and depreciation 80

Explanation: Calculate net investment for each option using Gross Investment − Depreciation. A gives 70 − 90 = −20, B gives 50 − 50 = 0, C gives 120 − 80 = 40, and D gives 0 − 10 = −10. Only option C produces a positive result, so only that situation adds to the capital stock after replacing depreciated capital.

Correct answer: B. Net investment

Explanation: Gross investment includes spending that merely replaces capital consumed through depreciation. To find the actual addition to the capital stock, depreciation must be deducted from gross investment. The resulting amount is net investment. Depreciation is a reduction, while consumption and transfer income are not measures of capital formation, so none of those alternatives directly identifies capital growth.

Correct answer: B. Replacement investment

Explanation: Replacing a machine restores the productive capacity lost when the old machine wears out or becomes obsolete. Since total machine capacity does not increase, the replacement does not create an additional net addition to the capital stock. It is therefore replacement investment. Net investment would be involved in expansion, while household consumption and exports do not describe this capital transaction.

Correct answer: A. First identify depreciation, then subtract it from gross investment to find net investment

Explanation: The correct procedure is to identify gross investment and depreciation separately, then use Net Investment = Gross Investment − Depreciation. This prevents confusion between the total investment and the part that only replaces worn-out capital. Consumption, exports, and population are not inputs in this basic calculation. Therefore option A gives the relevant and logically ordered steps.

Correct answer: A. 300 crore

Explanation: Net investment is calculated as gross investment minus depreciation. Depreciation is 25% of 400, which equals 100 crore. Therefore, net investment = 400 − 100 = 300 crore. Option B is only the depreciation amount, while option C ignores depreciation and option D incorrectly adds it.

Correct answer: A. Gross investment is less than depreciation

Explanation: Net investment equals gross investment minus depreciation. When depreciation is greater than gross investment, net investment becomes negative, so the economy’s capital stock falls despite some new investment. If gross investment exceeded depreciation, net investment would be positive and capital stock would rise, not fall.

Correct answer: A. 70 crore

Explanation: The accounting relationship is gross investment = net investment + depreciation. Rearranging it gives depreciation = gross investment − net investment. Since the stated difference between gross and net investment is 70 crore, depreciation must also be 70 crore. The other choices do not follow from the given difference.

Correct answer: A. 570

Explanation: Gross investment is divided into net investment and depreciation: Gross Investment = Net Investment + Depreciation. The net increase in capital stock represents net investment, so depreciation = 780 − 210 = 570. Therefore, option A is correct. The other values either repeat an original figure or result from adding instead of subtracting the net investment.

Correct answer: C. Net investment is zero

Explanation: Replacement investment is investment made to replace depreciated capital, so it equals depreciation. Here, depreciation is 900 and gross investment is also 900. Net investment = gross investment − depreciation = 900 − 900 = 0. Thus capital stock has no net increase; it is merely fully maintained.

Correct answer: C. 460

Explanation: Total investment represents gross investment, while the amount used to replace worn-out capital represents depreciation. Net investment, or the net increase in capital stock, equals gross investment minus depreciation. Thus, net increase = 640 − 180 = 460. Option C is correct. Adding the figures gives 820, whereas 640 and 180 are the gross investment and replacement amount separately.

Correct answer: A. 750

Explanation: Use the identity gross investment = net investment + depreciation. Therefore, depreciation = 1000 − 250 = 750. The beginning capital stock of 4000 is extra information and is not needed because both investment figures are already given. Option D is net investment, not depreciation, while option B incorrectly adds the two figures.

Correct answer: A. 325

Explanation: Net investment is half of gross investment, so net investment = 650 ÷ 2 = 325. Using gross investment = net investment + depreciation, depreciation = 650 − 325 = 325. Therefore, option A is correct. Here net investment and depreciation happen to have the same amount because net investment is exactly one-half of gross investment; this does not mean that depreciation is always equal to net investment.