Gross investment and depreciation

Correct answer: B. ₹40 crore

Explanation: Gross investment contains both net investment and the amount needed to replace depreciated capital. Therefore, Gross Investment = Net Investment + Depreciation. Substitution gives ₹30 crore + ₹10 crore = ₹40 crore. ₹30 crore is only the net addition to capital, and ₹10 crore is only depreciation; neither alone equals total gross investment. Hence option B is correct.

Correct answer: B. Replacement investment

Explanation: Replacement investment is the part of total investment used to replace capital that has been lost through wear, age, or obsolescence. It maintains the existing capital stock but does not create a net addition to it. Net investment is the amount remaining after depreciation is deducted from gross investment. Household consumption and wage payments are not forms of capital replacement.

Correct answer: A. Net increase in capital stock

Explanation: Positive net investment means that Gross Investment − Depreciation is greater than zero. Thus, investment first replaces the capital that has worn out and then adds some new capital to the stock. This produces a net increase in capital stock. Equality between gross investment and depreciation would produce zero net investment, while lower gross investment would produce a negative net investment.

Correct answer: C. Almost unchanged

Explanation: Zero net investment means that gross investment exactly equals depreciation. The investment made during the period only replaces capital that has worn out, so there is no net addition to or subtraction from the capital stock. Consequently, the stock generally remains almost unchanged. It rises with positive net investment and falls with negative net investment, not merely because depreciation exists.

Correct answer: A. Normal wear and tear of machines

Explanation: Depreciation is the decline in the value or productive usefulness of fixed capital over time. Normal wear and tear caused by repeated use of machines is a direct and common cause of this decline. A rise in consumer income, population, or bank deposits may affect demand, labour supply, or finance, but none of these by itself represents physical deterioration of a capital asset.

Correct answer: A. Decrease in a machine's value due to use and wear and tear

Explanation: Depreciation is the reduction in the value or productive capacity of a fixed capital asset because of use, wear and tear, age, or obsolescence. A machine losing value through use is therefore a direct example. Wages are payment for labour, food purchases are consumption expenditure, and tax collection is government revenue; none of these represents the loss of value of a capital asset.

Correct answer: B. Depreciation

Explanation: The accounting identity is Net Investment = Gross Investment − Depreciation. Rearranging it gives Gross Investment − Net Investment = Depreciation. Gross investment includes expenditure that replaces capital lost through depreciation, while net investment excludes that replacement component. Consumption, wages, and exports are separate economic measures and do not equal the difference between gross and net investment.

Correct answer: C. When gross investment is less than depreciation

Explanation: Net Investment = Gross Investment − Depreciation. The result is negative only when gross investment is smaller than depreciation. In that situation, new investment does not fully replace the capital that has worn out, so the capital stock may decline. Equality between the two gives zero net investment, while gross investment greater than depreciation gives a positive net investment.

Correct answer: C. 0

Explanation: Apply the formula Net Investment = Gross Investment − Depreciation. The calculation is 50 − 50 = 0. Gross investment exactly offsets the capital lost through depreciation, so there is no net addition to the capital stock. The answer 50 confuses gross investment with net investment, while 100 results from an incorrect addition and 25 has no basis in the given values.

Correct answer: B. 50

Explanation: Use Net Investment = Gross Investment − Depreciation. Substituting the values gives 80 − 30 = 50. This means that 30 units of investment replace the capital lost through depreciation, while the remaining 50 units are the net addition to the capital stock. The value 110 comes from adding the figures incorrectly, and 30 and 80 are only the separate given amounts.

Correct answer: C. 20

Explanation: The accounting relationship is Gross Investment = Net Investment + Depreciation. Substituting the values gives 15 + 5 = 20. The net amount of 15 is the addition left after replacing depreciated capital, while 5 is the replacement component. Adding both gives total gross investment. Subtraction would incorrectly reverse the relationship and produce 10, which is not the required gross amount.

Correct answer: A. 30

Explanation: The basic relationship is Net Investment = Gross Investment − Depreciation. Rearranging gives Depreciation = Gross Investment − Net Investment. Therefore, depreciation = 90 − 60 = 30. The figures 90 and 60 are the given gross and net investments, respectively. Adding them to obtain 150 is incorrect because depreciation is the difference, not the sum.

Correct answer: B. Investment

Explanation: A newly purchased machine is a capital good because it is used repeatedly in production over a period of time. Expenditure on such a good adds to productive assets and is therefore classified as investment. Consumption concerns goods and services used to satisfy current wants. Taxes and transfer payments are income-flow concepts, not categories describing the purchase of a productive machine.

Correct answer: A. Replacement investment

Explanation: When a firm buys a machine to replace one that has become worn out or obsolete, the expenditure is called replacement investment. It compensates for depreciation and maintains the existing productive capacity. Because it only replaces lost capital, it does not necessarily increase the total capital stock. Household consumption, financial saving, and foreign income describe different economic activities.

Correct answer: A. Net investment

Explanation: Net investment is calculated as gross investment minus depreciation. It is the amount remaining after replacing capital that has worn out. When net investment is positive, the economy has created more new capital than it has lost, so capital stock rises. Depreciation reduces capital value, while wages and taxes are payments or income flows and are not measures of capital addition.

Correct answer: B. Zero

Explanation: Net investment equals gross investment minus depreciation. If an economy only replaces capital that has worn out, gross investment is exactly equal to depreciation. The difference is therefore zero. This situation maintains the existing productive capacity but does not create additional capital. It is not positive, and it is not necessarily negative because replacement has fully covered the capital consumed.

Correct answer: A. It may generally remain stable

Explanation: When gross investment equals depreciation, all new investment is used to replace capital consumed through use or obsolescence. Net investment is therefore zero. Under the standard textbook assumption, the existing capital stock and productive capacity are maintained rather than expanded. Capacity does not double, become zero, or remain unrelated to investment; equality means replacement without net addition.

Correct answer: A. Gross investment 70 and depreciation 20

Explanation: Use the formula net investment = gross investment − depreciation. In option A, 70 − 20 = 50, which is positive. Option B gives −50, option C gives 0, and option D gives −10. Therefore only A shows that investment exceeds the capital consumed through depreciation, creating a genuine addition to the capital stock.

Correct answer: C. Gross investment 30 and depreciation 50

Explanation: Net investment is found by subtracting depreciation from gross investment. For option C, 30 − 50 = −20, so net investment is negative. Depreciation is greater than investment, meaning replacement is incomplete and capital stock may fall. Option B gives zero, while A and D give positive results because their gross investment exceeds depreciation. Thus C is the only correct choice.

Correct answer: B. Gross investment 25 and depreciation 25

Explanation: The formula is net investment = gross investment − depreciation. In option B, 25 − 25 = 0, so net investment is zero. This means gross investment exactly replaces the capital consumed through depreciation. Options A and C produce positive values, whereas option D produces a negative value. Therefore B alone represents zero net investment and maintenance of the existing capital stock.

Correct answer: B. Net investment

Explanation: Gross investment includes spending that replaces depreciated capital as well as spending that creates additional capital. After depreciation is deducted from gross investment, the remaining amount is called net investment. It measures the actual addition to the capital stock. Gross investment is the amount before deduction, while consumption and money supply are separate economic concepts and cannot be the answer.

Correct answer: A. It shows wear and tear of capital goods

Explanation: Depreciation is the fall in the value or productive usefulness of fixed capital such as machines, buildings, and equipment because of use, wear and tear, or obsolescence. Therefore A is correct. Wages are payments to labour, final consumption is spending by users, and exports are goods or services sold abroad. These concepts are different from the loss of capital value represented by depreciation.

Correct answer: A. Depreciation

Explanation: A machine that becomes less useful or loses value as it ages is experiencing depreciation. Depreciation may result from physical wear and tear or from obsolescence when newer technology makes an asset less productive. Consumption concerns current use of goods, exports concern foreign sales, and tax is a compulsory payment. None of these alternatives describes the fall in capital value caused by age.

Correct answer: A. 100

Explanation: Apply the formula net investment = gross investment − depreciation. Substituting the values gives 120 − 20 = 100. The result is positive because gross investment is greater than depreciation, so capital stock increases by 100 units in the simplified calculation. Option D incorrectly adds the two figures, while B and C do not follow the formula.

Correct answer: C. Negative 30

Explanation: Net investment equals gross investment minus depreciation. Thus, 40 − 70 = −30. The negative sign shows that gross investment is insufficient to replace all capital lost through depreciation, so capital stock may decline by 30 units in the simplified example. A positive 30 would require investment to exceed depreciation, and 110 incorrectly adds the two figures instead of subtracting them.