Gross investment and depreciation

Correct answer: B. Gross investment = Net investment + Depreciation

Explanation: Gross investment includes both the net addition to the capital stock and the investment needed to replace capital consumed through depreciation. Since net investment excludes the replacement component, depreciation must be added to it: Gross investment = Net investment + Depreciation. Subtracting depreciation gives the net figure, not the gross figure. Therefore, option B is correct.

Correct answer: C. Depreciation = Gross investment - Net investment

Explanation: The basic relationship is Gross investment = Net investment + Depreciation. Rearranging this identity gives Depreciation = Gross investment − Net investment. Thus, the difference between gross and net investment measures the capital consumed during the period. Adding the two figures or using consumption and saving does not produce depreciation. Therefore, option C is correct.

Correct answer: B. It will rise

Explanation: In this question, total spending on new capital goods represents gross investment. Net investment is calculated as gross investment minus depreciation. When gross investment increases and depreciation remains unchanged, the difference also increases by the same amount. The result is not necessarily zero or equal to depreciation; it depends on the actual figures. Therefore, option B is correct.

Correct answer: A. Gross investment 100 and depreciation 20

Explanation: Apply Net investment = Gross investment − Depreciation to every option. A gives 100 − 20 = 80; B gives 100 − 50 = 50; C gives 80 − 20 = 60; and D gives 60 − 10 = 50. Since 80 is the largest result, option A is correct. Comparing gross investment alone would be insufficient because depreciation must also be deducted.

Correct answer: D. Gross investment 60 and depreciation 80

Explanation: Calculate net investment in each case using gross investment minus depreciation. A, B, and C each give 60. In D, the result is 60 − 80 = −20. A negative net investment means depreciation is greater than gross investment, so the capital stock has declined. Because −20 is lower than 60, option D is the unique correct answer.

Correct answer: B. Positive net investment

Explanation: Productive capacity increases only when the economy adds more capital than the amount consumed through depreciation. This requires positive net investment, which means gross investment is greater than depreciation. Investment equal to depreciation merely maintains the existing capital stock, while zero net investment leaves it unchanged and negative net investment reduces it. Therefore, option B is correct.

Correct answer: A. Gross investment equals depreciation

Explanation: Maintaining existing productive capacity requires replacing the capital consumed through depreciation, without adding extra capital. When gross investment equals depreciation, net investment is zero because Gross investment − Depreciation = 0. If depreciation exceeds investment, capacity falls; zero gross investment may also cause deterioration; and high positive net investment increases capacity. Hence, option A is correct.

Correct answer: B. Total investment in new capital goods including replacement

Explanation: Gross investment is the total expenditure on new capital goods during a period. It includes replacement investment, which restores capital consumed through depreciation, and the additional part that creates a net increase in the capital stock. A fall in the value of old capital is depreciation, not gross investment. Household consumption and income from abroad are separate economic concepts. Thus, option B is correct.

Correct answer: A. Fall in value of capital goods due to use and time

Explanation: Depreciation is the reduction in the value or productive capacity of fixed capital caused by normal use, wear and tear, and the passage of time. In national-income accounting, it is also called consumption of fixed capital. It is not an increase in household income, foreign trade, or tax revenue. Therefore, the definition in option A is correct.

Correct answer: A. Replacement investment

Explanation: Replacement investment is used to purchase or create capital goods that compensate for those worn out during production. When it equals depreciation, it restores the previous capital stock but creates no net addition. Net investment and additional investment represent capital added beyond replacement, while a new net addition directly implies growth. Therefore, replacement investment is the correct answer: option A.

Correct answer: A. As depreciation

Explanation: A machine is a fixed capital asset. When normal use and wear reduce its usefulness or service potential, national-income accounting records that reduction as depreciation, also called consumption of fixed capital. It is not classified as an export, tax receipt, or demographic change. Therefore, the appropriate adjustment is depreciation, making option A correct.

Correct answer: B. Depreciation

Explanation: Replacement investment restores the capital goods consumed through use and normal wear. The value of that capital consumption is measured by depreciation. Therefore, in the standard investment identity, the replacement component of gross investment is treated as equal to depreciation: Gross investment = Net investment + Depreciation. Consumption, tax, and exports are unrelated to this component. Option B is correct.

Correct answer: C. Net investment

Explanation: Gross investment is divided into replacement investment and net investment: Gross investment = Replacement investment + Net investment. Replacement investment offsets depreciation, while the remaining amount adds to the capital stock. Therefore, subtracting replacement investment from gross investment leaves net investment. Consumption, tax, and exports are not the residual components in this identity, so option C is correct.

Correct answer: A. When depreciation is zero

Explanation: The identity is Gross investment = Net investment + Depreciation. Gross and net investment can be equal only when the depreciation component is zero. If depreciation is positive, gross investment exceeds net investment by that amount. Zero gross investment combined with positive depreciation would produce negative net investment, not equality. A negative net investment alone is also not the required condition. Hence, option A is correct.

Correct answer: A. When depreciation is positive

Explanation: Gross investment equals net investment plus depreciation. Whenever depreciation is positive, gross investment includes a positive replacement component and is therefore greater than net investment. If depreciation is zero, the two are equal. The absence of capital goods does not establish the stated accounting relation, and option D contradicts it. Thus, the sufficient and correct condition is positive depreciation, option A.

Correct answer: A. 75

Explanation: Use the identity Gross investment = Net investment + Depreciation. Rearranging gives Depreciation = Gross investment − Net investment. Substitution yields 250 − 175 = 75. The value 425 comes from incorrectly adding the two investments, while 175 and 250 are the given figures rather than the calculated depreciation. Therefore, option A, 75, is correct.

Correct answer: B. Positive but small

Explanation: Net investment equals gross investment minus depreciation. When gross investment is greater than depreciation, the difference is positive. Because the question says it is only slightly greater, that positive difference will be small. Net investment would be zero only if the two values were equal, and negative if depreciation exceeded gross investment. Therefore, option B is correct.

Correct answer: B. Net investment negative 25 crore and capital may fall

Explanation: Apply Net Investment = Gross Investment − Depreciation. Here, 75 − 100 = −25 crore. The negative result means that gross investment was insufficient to replace the capital lost through wear and tear. Therefore, assuming no other adjustment, the capital stock may decline by 25 crore. Option A reverses the subtraction, C adds the figures, and D ignores the shortfall.

Correct answer: A. Because it only covers depreciation

Explanation: Replacing an old machine restores capital lost through normal wear or obsolescence, so it is replacement investment. Since the replacement does not create additional productive capacity, it does not increase the capital stock net of depreciation. Expansion investment is different because it adds machines, facilities, or productive capacity beyond what is needed merely to maintain the existing level.

Correct answer: B. 320

Explanation: The net addition to capital stock is net investment. Use Net Investment = Gross Investment − Depreciation. Therefore, 500 − 180 = 320. The remaining 320 represents the part of total investment that adds to capital after replacing the capital consumed during the period. Adding the figures gives 680, while 180 and 500 are only separate components, not the net addition.

Correct answer: A. 180

Explanation: An increase of 70 in capital stock represents net investment of 70. Since Net Investment = Gross Investment − Depreciation, 70 = 250 − Depreciation. Therefore depreciation = 250 − 70 = 180. This means 180 of gross investment replaced worn-out capital and the remaining 70 created additional capital. The other values confuse gross investment, depreciation, or net investment.

Correct answer: B. Gross investment is the sum of net investment and depreciation

Explanation: Gross investment measures total investment before deducting the capital consumed during production. Therefore, Gross Investment = Net Investment + Depreciation. Its two parts are replacement investment, which maintains existing capital, and net investment, which adds to capital. Depreciation alone is only the replacement component; consumption, taxes, and imports are not the definition of gross investment.

Correct answer: B. Fall in fixed capital value due to normal use and obsolescence

Explanation: Depreciation, also called consumption of fixed capital, is the loss in the value or productive service of fixed assets because of normal wear, ageing, or obsolescence. It is not the total purchase of new capital goods; that purchase is investment. Household food spending and government tax collection are unrelated flows and do not measure the wearing out of capital.

Correct answer: B. 250

Explanation: Replacement investment compensates for the capital lost through depreciation. Therefore, when replacement investment is treated as depreciation, Net Investment = Gross Investment − Replacement Investment. The calculation is 400 − 150 = 250. Thus, 150 maintains the existing capital stock and the remaining 250 adds to it. The sum 550 is wrong because the replacement amount must be deducted.

Correct answer: B. Net increase in capital stock is zero

Explanation: Calculate net investment as 280 − 280 = 0. Gross investment exactly equals depreciation, so it replaces the capital consumed during the period but creates no additional capital. Consequently, the capital stock is maintained at the same level, assuming no other changes. A value of 280 ignores depreciation, a fall would require depreciation to exceed gross investment, and 560 is an incorrect addition.