Gross investment and depreciation

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.