Gross investment and depreciation

Inventory change is treated as investment because it represents goods produced during the current period but not yet sold or used. An increase in unsold inventories adds to investment, while a fall in inventories can reduce measured investment because earlier-produced goods are being sold. In the expenditure approach, inventory investment is included in gross domestic investment.

Gross investment means expenditure on newly produced capital goods, such as machinery, equipment and buildings, together with the change in inventories. It is called gross because depreciation of existing capital has not yet been deducted. Buying old shares is a financial transaction, gifts are transfers, and subtracting imports belongs to the expenditure identity rather than defining gross investment.

Construction of a new school building creates a fixed capital asset and represents current production of construction services and materials. Therefore, the expenditure is counted in GDP as government investment or government capital formation. It is not a transfer payment because the government receives a newly produced asset, and it is not depreciation, which records the wearing out of existing capital.

Depreciation, also called consumption of fixed capital, measures the loss of value of machines, buildings and other fixed assets used in production. GDP is calculated before subtracting this allowance; therefore it is called a gross measure. When depreciation is deducted from GDP, the result is NDP. Per-capita and transfer measures describe different ideas.

Net domestic product is obtained by making the gross-to-net adjustment: NDP = GDP − depreciation. Depreciation represents the value of fixed capital consumed during production, so it must be deducted from the gross figure. NFIA changes a domestic aggregate into a national aggregate, while exports and private consumption are expenditure components and are not the required deduction.

An increase in inventory means that firms produced more goods during the period than they sold. The unsold goods are treated as inventory investment because they are part of current production and may be sold later. Including this change prevents current output from being omitted merely because the goods have not yet reached final buyers.

GDP measures current production, not merely goods that have been sold to final buyers. Therefore, goods produced during the year but remaining unsold are recorded as inventory investment, usually called change in stocks. When these goods are sold later, they are not counted as new production again; the inventory treatment prevents both omission and double counting.

Gross investment represents total additions to the capital stock during the period, including the amount required to replace worn-out capital. Net investment measures the actual increase in productive capital after allowing for consumption of fixed capital. The formula is net investment = gross investment − consumption of fixed capital. Therefore, net investment = 250 − 70 = 180 crore. Option C is correct.

GDP records production during the current period, not merely the sales completed during that period. If a good is produced but remains unsold, it is treated as an addition to inventories, also called inventory investment or change in stock. The producer is considered to have purchased the unsold output for inventory purposes, so its current production value is included in GDP.

Fixed capital formation means expenditure on newly produced fixed assets that are used repeatedly in the production process, such as machinery, buildings, and equipment. A company’s purchase of a new machine adds to its productive capital and is included in investment. Gifts and scholarships are transfer payments, while resale of an old car does not represent current production.

The governing formula is net investment = gross investment − depreciation. Rearranging it gives depreciation = gross investment − net investment. Substituting the figures, depreciation = 250 crore − 190 crore = 60 crore rupees. Therefore option B is correct. The other values result from incorrect subtraction or from treating net investment itself as depreciation.

Net investment, or net capital formation, is calculated as gross investment minus depreciation. When gross investment exactly equals depreciation, net investment is zero. In that situation, new investment merely replaces the capital that has worn out, so the productive capital stock generally remains unchanged, assuming no other capital losses or adjustments.

Net investment measures the addition to capital after replacing worn-out capital. The governing formula is net investment = gross investment − depreciation. Thus, net investment = 620 − 170 = 450 crore rupees. Because this amount is positive, the capital stock increases by 450 crore rupees. Option A is correct; B adds depreciation, C reverses the sign, and D confuses depreciation with net investment.

The governing identity is net investment = gross investment − depreciation. Substituting the figures gives 160 − 210 = −50 crore rupees. Since depreciation exceeds new investment, the economy or firm experiences negative net investment and its capital stock declines by 50 crore rupees, assuming other factors are unchanged. Therefore option B is correct; A misses the negative sign, C adds the figures, and D wrongly treats unequal amounts as equal.

Net investment is calculated as gross investment minus depreciation: Net investment = Gross investment − Depreciation. If gross investment is 85 crore rupees less than depreciation, subtracting the larger depreciation amount produces −85 crore rupees. Thus capital stock falls by 85 crore in net terms. Option A ignores the negative sign, while C and D do not follow the formula.

Depreciation is the gradual and expected reduction in the value or productive capacity of a fixed asset because of normal wear, age, or regular use. A sudden, exceptional destruction caused by an earthquake is treated as capital loss. Therefore the correct sequence is depreciation followed by capital loss; the other options confuse ordinary decline with an extraordinary loss.

The governing identity is gross investment = net investment + depreciation. The actual increase in capital stock represents net investment, so net investment is 260 crore rupees. Rearranging gives depreciation = gross investment − net investment = 900 − 260 = 640 crore rupees. Therefore option A is correct. Option D is the net investment itself, not depreciation, while the larger alternatives do not follow the identity.

The investment identity is net investment = gross investment − depreciation. Depreciation equals 125% of 400, so depreciation = 400 × 125/100 = 500 crore rupees. Therefore net investment = 400 − 500 = −100 crore rupees. The negative result means the fall in capital stock exceeds new investment. Hence option B is correct; 500 crore rupees is depreciation, not net investment.

The governing concepts are depreciation and the distinction between gross and net investment. Depreciation equals GDP − NDP = ₹7000 − ₹6600 = ₹400 crore. Net investment equals gross investment minus depreciation, so it is ₹850 − ₹400 = ₹450 crore. Hence option B is correct. Option A is only depreciation, option C is gross investment, and option D incorrectly adds the two amounts.

The key identity is net investment = gross investment − depreciation. Rearranging gives depreciation = gross investment − net investment. Substituting the values yields ₹600 − (−₹80) = ₹680 crore. The negative net investment must be handled carefully; it means depreciation exceeds gross investment. Therefore option C is correct, while ₹520 crore results from an incorrect sign.

Under the straight-line method, annual depreciation equals depreciable cost divided by useful life. Depreciable cost is original cost minus salvage value: ₹20 lakh − ₹2 lakh = ₹18 lakh. Dividing by 6 years gives ₹18/6 = ₹3 lakh per year. Thus option B is correct. Option C divides the full cost incorrectly, while A and D do not apply the complete formula.

The governing investment identity is net investment = gross investment − depreciation. The actual increase in the capital stock represents net investment, so net investment is 330 crore rupees. Substituting the values gives 330 = 1050 − depreciation. Therefore depreciation = 1050 − 330 = 720 crore rupees. Option A is correct. Option B treats gross investment as depreciation, option D treats net investment as depreciation, and option C adds rather than subtracts the two amounts.

Net investment equals gross investment minus depreciation. Depreciation is 140% of 500 crore rupees, so depreciation = 500 × 1.40 = 700 crore rupees. Hence net investment = 500 − 700 = −200 crore rupees. The negative sign indicates disinvestment: depreciation is greater than new gross investment, so the capital stock falls by 200 crore rupees. Therefore option B is correct; option C is depreciation itself, not net investment.

Net investment equals gross investment minus depreciation: NI = G − D. After both amounts fall by 12%, they become 0.88G and 0.88D. Therefore, new NI = 0.88G − 0.88D = 0.88(G − D), which is 88% of the original net investment. Hence net investment falls by 12%, making option A correct; adding the two falls would incorrectly treat subtraction as addition.

The governing identities are depreciation = GDP − NDP and net investment = gross investment − depreciation. Depreciation is therefore 8200 − 7700 = 500 crore rupees. Subtracting this from gross investment gives net investment = 980 − 500 = 480 crore rupees. Hence option A is correct. Option B is depreciation, option C is gross investment itself, and option D incorrectly adds the two relevant amounts.