Gross investment and depreciation

Net increase in capital stock equals net investment, calculated as gross investment minus depreciation. The four net increases are: A, 600 − 250 = 350; B, 550 − 100 = 450; C, 700 − 300 = 400; and D, 480 − 50 = 430. The largest value is 450 in option B, so B is correct. A larger gross investment alone does not guarantee the largest net increase.

Capital stock changes by net investment, which equals gross investment minus depreciation. The values are A: −150, B: −90, C: −10, and D: −40. The most negative value is −150 in option A, so capital stock falls the most there. A larger depreciation alone is not enough; the net difference must be compared.

The net increase in capital stock is ending stock minus beginning stock: 5300 − 5000 = 300. This is net investment. Since gross investment = net investment + depreciation, depreciation = 900 − 300 = 600. Option B is correct. The amount 300 is only the increase in capital stock, and 900 is the given gross investment; neither is depreciation.

The change in capital stock is ending stock minus beginning stock: 6900 − 7000 = −100. Thus, net investment is −100. Gross investment equals net investment plus depreciation, so gross investment = −100 + 500 = 400. Option A is correct. The fall of 100 must be treated as negative net investment; simply using 100 or 500 would ignore the required relationship.

The statement means net investment = depreciation + 90. Therefore, depreciation = 360 − 90 = 270. Gross investment equals net investment plus depreciation, so gross investment = 360 + 270 = 630. Option A is correct. The value 270 is depreciation and 360 is net investment; 450 incorrectly adds 90 only once without using the gross-investment relationship.

Net investment is calculated as gross investment minus depreciation. If depreciation is reported below its actual amount, too little is subtracted from gross investment. The calculated net investment therefore appears larger than the true figure. It does not necessarily become zero, and the error affects the estimate even when gross investment itself is measured correctly.

Because net investment equals gross investment minus depreciation, an overestimated depreciation amount leads to an excessive deduction. The calculated net investment becomes lower than the actual net investment, so it is underestimated. Net investment cannot normally exceed gross investment when depreciation is non-negative; therefore, option C is also inconsistent with the concept.

NDP is obtained from GDP by subtracting depreciation: NDP = GDP − depreciation. If GDP is correct but depreciation is understated, the subtraction is too small. The resulting NDP therefore appears higher than its correct value. It does not become zero automatically, and it cannot remain unchanged because one of the two components has been measured incorrectly.

Net National Product is calculated as NNP = GNP − depreciation. When GNP remains correct but depreciation is recorded at a value higher than the actual amount, the larger amount is subtracted from GNP. Consequently, the calculated NNP becomes lower than its true value and is therefore underestimated. NNP cannot equal GNP unless depreciation is zero.

Net investment is obtained by subtracting depreciation from gross investment. First calculate depreciation: 45% of 720 = 0.45 × 720 = 324. Then calculate net investment: 720 − 324 = 396. Thus, 396 is correct. Option A is only the depreciation amount, while option C ignores depreciation and option D incorrectly adds it to gross investment.

The relationship between these measures is gross investment = net investment + depreciation. Since depreciation is stated as 25% of net investment, depreciation = 25% of 480 = 0.25 × 480 = 120. Therefore, gross investment = 480 + 120 = 600. Option C gives only depreciation, and option B gives only net investment rather than the required gross amount.

Depreciation is the difference between gross investment and net investment. Therefore, depreciation = 1,000 − 600 = 400. To express it as a percentage of gross investment, calculate (400 ÷ 1,000) × 100 = 40%. Hence, option B is correct. The 60% figure is the net investment as a percentage of gross investment, not depreciation.

Net investment equals gross investment minus depreciation. In option A, net investment is 1000 − 900 = 100, so it is positive. However, depreciation is 900, meaning 90% of gross investment is being used to replace worn-out capital. Option B has a much smaller replacement share, option C has none, and option D has negative net investment.

Calculated net investment equals reported gross investment minus estimated depreciation. If depreciation is recorded below its true value, too little is subtracted, so the calculated net investment is overstated. This error does not automatically change gross investment, make net investment zero, or make depreciation irrelevant. The conclusion assumes gross investment is held constant while only the depreciation estimate is understated.

When gross investment is less than depreciation, net investment is negative because replacement is incomplete. If this continues, the stock of productive assets can erode: machines, buildings, or infrastructure are not fully renewed. This creates a risk to productive capacity over time. Rapid expansion and positive net investment require gross investment to exceed depreciation, while depreciation does not disappear merely because investment is low.

Obsolescence occurs when an existing asset becomes less useful or less valuable because newer technology makes it outdated, even though it may still physically operate. This loss is included in the broader idea of depreciation or consumption of fixed capital. A flood or earthquake would be an accidental destruction, wages are payments to labour, and household consumption is unrelated to the machine’s loss in value.

Normal depreciation is the gradual consumption of fixed capital through expected wear and tear, ageing, or technological obsolescence during production. Flood destruction is a sudden, exceptional loss caused by an accident or natural event, not the ordinary decline captured by routine depreciation. The machine is still a capital asset, and depreciation is an economic accounting concept, not merely a tax payment.

A same-capacity replacement restores the productive capacity lost through wear and tear; it does not create additional capacity. Therefore it is replacement or maintenance investment and mainly offsets depreciation. Expansion investment requires an increase in the stock or capacity of productive assets, such as an extra machine or production line. A machine is a capital good, and the transaction is neither an export nor a wage payment.

Net investment is calculated as gross investment minus depreciation. In option C, net investment = 210 − 80 = 130, which is positive. This means investment first replaces the capital worn out and then adds 130 units to the capital stock, causing expansion. In option A, net investment is zero, while B and D show negative net investment and therefore a reduction in capital stock.

The relationship is net investment = gross investment − depreciation. If net investment is zero, gross investment equals depreciation, not necessarily zero. For example, gross investment of 100 and depreciation of 100 maintain the capital stock without expanding it. Thus B is correct; A and C confuse gross and net concepts.

Depreciation includes the loss in value or productive usefulness of capital goods caused by physical wear and technological obsolescence. Rapid aging and early replacement can therefore increase depreciation. Net investment is gross investment minus depreciation, so higher depreciation would reduce net investment if gross investment did not change. The other choices do not follow directly.

When replacement investment is insufficient to cover depreciation, the economy’s capital stock can decline. A smaller or older capital stock may reduce the ability to produce goods and services in future periods. Depreciation does not become zero merely because it is ignored, and consumption does not automatically become capital. Therefore A identifies the relevant risk.

The purchase of new machines represents gross investment, but some of that investment may only replace capital lost through depreciation. To measure the actual addition to the capital stock, depreciation must be subtracted from gross investment. Without that adjustment, the conclusion about real net capital growth remains incomplete. The other variables are not determined by this calculation.

Net investment = gross investment − depreciation. In option C, net investment is 60 − 130 = −70. Since depreciation exceeds new investment, the economy loses more capital than it adds, so the capital stock falls. Option B gives zero net investment, while A and D give positive net investment and capital expansion.

Gross investment includes both replacement of depreciated capital and additions that expand the capital stock. Therefore, it may be large even when there is no actual growth in capital. The correct measure of capital growth is net investment, calculated by subtracting depreciation from gross investment. Hence A identifies the conceptual error.