Gross investment and depreciation

Net investment measures the change in the capital stock after allowing for depreciation. It is found by subtracting depreciation from gross investment. A positive result indicates a net addition, zero indicates maintenance of the existing stock, and a negative result indicates a possible decline. Personal income, private consumption, and money supply do not directly determine this particular capital-stock change.

Net investment = gross investment − depreciation. Substituting the figures gives 200 − 250 = −50 crore. Thus net investment is negative by ₹50 crore, because new investment is insufficient to replace the capital consumed through depreciation. This suggests a fall in the capital stock, although the exact future productive capacity may depend on other conditions. The positive, zero, and doubling claims are therefore incorrect.

Zero net investment means gross investment minus depreciation equals zero. Therefore gross investment and depreciation are equal. Even if the gross amount is large, it only replaces capital that has worn out or become obsolete, so the total capital stock does not rise in net terms. Option A would require positive net investment, option C is the opposite of the condition, and option D incorrectly dismisses a meaningful accounting measure.

Use the identity gross investment = net investment + depreciation. Here, gross investment = (−20) + 90 = 70 crore. The negative net investment does not mean that gross investment itself is negative; it means depreciation exceeded new investment by ₹20 crore. Therefore option A is correct, while 90 ignores the net-investment figure and 110 uses the wrong sign.

Starting from gross investment = net investment + depreciation, depreciation = gross investment − net investment. Thus depreciation = 400 − 150 = ₹250 crore. This amount represents the part of gross investment required to replace consumed capital; the remaining ₹150 crore is the net addition. The other options result from failing to subtract, using only one given value, or adding the two values.

Replacing the old machine is replacement investment: it offsets depreciation and maintains existing capacity. The additional production line creates extra productive capacity, so it represents the expansion component and contributes to net investment. In practice, total net investment is measured after deducting depreciation from total gross investment. The name of the machine is irrelevant, and depreciation itself is not an additional capital asset.

Consumption of fixed capital refers to the loss in value of fixed assets caused by normal wear and tear, ageing, or obsolescence while they are used in production. It does not mean that a machine is physically eaten or used as household food. The term records the amount of productive capital consumed during the accounting period, which is why depreciation is deducted when moving from gross to net measures.

The relationship is net investment = gross investment − depreciation. Gross and net investment are equal only when the amount deducted, depreciation, is zero. If depreciation is positive, net investment must be smaller than gross investment; if it exceeds gross investment, net investment is negative. A large replacement component does not create equality because replacement investment is part of gross investment and is offset by depreciation.

Net investment = gross investment − depreciation = 300 − 300 = 0 crore. Thus investment exactly replaces the capital consumed during the period. The existing capital stock is maintained in net terms, but it does not receive a net addition. A rise would require gross investment to exceed depreciation, a fall would require it to be smaller, and depreciation is clearly present here.

Net investment measures the increase in capital after allowing for the capital consumed during the period. Therefore the formula is net investment = gross investment − depreciation. Depreciation must be deducted, not added, because gross investment includes both replacement of worn-out capital and any new addition. Taxes and general consumption are not the adjustment used in this gross-to-net investment conversion.

Net investment = gross investment − depreciation. If net investment is positive, gross investment exceeds depreciation, so investment first replaces worn-out capital and then adds some new capital to the stock. This produces a net increase in productive assets. Option B describes zero net investment, option C implies a negative result, and depreciation itself is normally recorded as a positive amount rather than a negative one.

A negative result means gross investment is smaller than depreciation. The economy has invested less in new or replacement capital than the amount of capital consumed during the period, so the worn-out portion has not been fully replaced. This indicates negative net investment and a possible reduction in capital stock. It does not imply that gross investment is negative or that depreciation is absent.

When gross investment is below depreciation, net investment is negative. Replacement spending is not sufficient to restore all capital consumed through wear, ageing, or obsolescence, so the productive capital stock may shrink. If gross investment equals depreciation, capacity is maintained in net terms; if it exceeds depreciation, the stock can expand. Zero depreciation does not itself create the highest risk of decline.

To maintain capital stock in net terms, new investment must replace the capital consumed during the period. Therefore gross investment must be at least equal to depreciation. Equality gives zero net investment and simple maintenance; investment above depreciation creates positive net investment and expansion. Investment below depreciation leaves some worn-out capital unreplaced. Option D compares unrelated aggregates and does not state the maintenance condition.

Calculate net investment as gross investment minus depreciation: 500 − 200 = ₹300 crore. Because the result is positive, the economy replaces the ₹200 crore of consumed capital and adds a further ₹300 crore to its capital stock in net terms. A decrease would require gross investment below depreciation, while no change would require equality. The ₹200 crore is the depreciation amount, not the net increase.

Net investment measures the change in capital stock after allowing for depreciation. When depreciation or wear of old capital is greater than the value of new capital purchased, gross investment is less than depreciation. Therefore, gross investment minus depreciation is negative, showing that the capital stock has fallen.

Capital stock is maintained when gross investment exactly equals depreciation, because new investment replaces the capital that has worn out. In option A, net investment = 100 − 100 = 0, so there is neither an increase nor a decrease in the capital stock. Option B expands capital because its net investment is positive, while C and D reduce capital because their net investment is negative.

Depreciation is the gradual loss of value or productive usefulness of fixed capital. It occurs through normal use, physical wear, age, and technological or economic obsolescence, even when a machine still operates. A complete breakdown is not required. Therefore A corrects the misconception, while the other choices confuse depreciation with unrelated economic categories.

The net addition to capital stock is net investment. Use the formula: net investment = gross investment − depreciation. Substituting the values gives 125 − 75 = 50. Thus the capital stock rises by 50 units after accounting for worn-out capital. The values 75 and 125 represent depreciation and gross investment separately, not the net addition.

The identity is gross investment = net investment + depreciation. Rearranging it gives depreciation = gross investment − net investment. Therefore, depreciation = 125 − 50 = 75. The figure 50 is the net addition to capital stock, while 125 is the total or gross investment; neither is the required depreciation amount.

Gross investment includes both the amount that replaces depreciation and the net addition to capital. The formula is gross investment = net investment + depreciation. Thus gross investment = 40 + 110 = 150. Option B is only net investment and option C is only depreciation; 70 is their difference and does not represent the required gross amount.

Depreciation is the decline in the value or productive capacity of fixed capital over time because of use, aging, or obsolescence. It is not a purchase of consumption goods, tax revenue, or a bank deposit. Option A gives the relevant general meaning, although in accounting the decline is measured systematically over the asset’s useful life.

Net investment is calculated by subtracting depreciation from gross investment. If depreciation stays unchanged and gross investment falls, the difference becomes smaller. For example, a fall from gross investment 100 to 80 with depreciation fixed at 60 changes net investment from 40 to 20. Therefore net investment falls, although its exact sign depends on the values.

Net investment equals gross investment minus depreciation. When gross investment is fixed, an increase in depreciation subtracts a larger amount from it, so net investment decreases. For example, with gross investment of 100, increasing depreciation from 40 to 60 reduces net investment from 60 to 40. The result may eventually become zero or negative, depending on the size of depreciation.

The net addition to capital stock is net investment. Apply the formula: net investment = gross investment − depreciation. Thus, 280 crore − 180 crore = 100 crore. The depreciation amount of 180 crore is only the value of capital consumed, while 280 crore is the total investment; neither is the net addition. Therefore option A is correct.