Gross investment and depreciation

Correct answer: D. 10

Explanation: The relationship is Net Investment = Gross Investment − Depreciation. Rearranging gives Depreciation = Gross Investment − Net Investment = 55 − 45 = 10. Gross investment includes both replacement investment and the addition to capital stock; net investment represents only the addition. Therefore the difference of 10 is depreciation, while the other values merely repeat given figures or add them incorrectly.

Correct answer: B. 15

Explanation: Gross investment is the sum of net investment and depreciation: gross investment = net investment + depreciation. Substituting the values gives 0 + 15 = 15. Zero net investment does not mean that no investment occurred; it means investment was exactly sufficient to replace depreciated capital. Therefore B is correct, while 30 and 45 have no basis in the accounting identity.

Correct answer: A. Gross investment equals the sum of net investment and depreciation

Explanation: Gross investment contains two parts: investment that replaces capital lost through depreciation and investment that adds new capital. Therefore, gross investment = net investment + depreciation. Rearranging gives net investment = gross investment − depreciation. The other statements confuse investment with wages, consumption, or exports and do not express the accounting relationship between gross and net investment.

Correct answer: A. Depreciation

Explanation: The word gross means that depreciation has not yet been deducted, whereas net means that depreciation has been allowed for. Thus, depreciation creates the difference between corresponding gross and net aggregates. For investment, net investment = gross investment − depreciation; for domestic product, NDP = GDP − depreciation. Population, taste, and weather do not define this accounting distinction.

Correct answer: B. 150

Explanation: To calculate net investment, subtract depreciation from gross investment: 200 − 50 = 150. The positive result means that, after replacing the capital consumed through depreciation, 150 units remain as a net addition to capital stock in this simplified calculation. Option A incorrectly adds the figures, C is only depreciation, and D is only gross investment.

Correct answer: D. 60

Explanation: The accounting identity is gross investment = net investment + depreciation. Therefore, gross investment = 25 + 35 = 60. Net investment is the addition remaining after depreciation, so it must not be confused with total investment. Option A is the difference between the two figures, while B and C represent only one component each. The correct total is therefore 60.

Correct answer: B. Negative

Explanation: Net investment equals gross investment minus depreciation. When depreciation is greater than gross investment, the subtraction produces a negative value. This means investment has not fully replaced the capital consumed during the period, so capital stock may decline. It is not always zero or double; the exact result depends on the numerical difference between gross investment and depreciation. Under the stated comparison, negative is the appropriate answer.

Correct answer: A. When net investment is positive

Explanation: Net investment equals gross investment minus depreciation. If it is positive, gross investment exceeds the capital consumed through depreciation, leaving a genuine addition to the capital stock. If net investment is zero, investment only maintains existing capacity. If depreciation exceeds gross investment, capital stock may fall; equality also gives zero net investment rather than an increase. Therefore A is the only correct condition.

Correct answer: C. Net investment is negative

Explanation: Net investment is calculated as gross investment minus depreciation. Therefore, Net investment = 100 − 120 = −20. Since the result is below zero, net investment is negative. Depreciation is exceeding the addition of new capital, so the capital stock is likely to decline. A positive result would require gross investment to exceed depreciation, while equality would produce zero net investment.

Correct answer: B. Total addition to capital goods including replacement

Explanation: Gross investment is the total expenditure on capital goods during a period. It includes replacement investment, which restores capital worn out through depreciation, and additional investment that expands the capital stock. Depreciation is deducted from gross investment to obtain net investment. Consumption spending and household saving are related economic ideas, but neither defines gross investment.

Correct answer: A. Net addition to capital after deducting depreciation

Explanation: Net investment measures the actual addition to the capital stock after allowing for capital consumed during the period. Its formula is Net investment = Gross investment − Depreciation. Wear and tear describe depreciation, not net investment. Repairs may maintain existing equipment, and consumer goods are not capital goods, so neither represents the concept asked here.

Correct answer: A. Gross investment equals depreciation

Explanation: The change in capital stock is represented by net investment, which equals gross investment minus depreciation. When gross investment equals depreciation, the difference is zero. Investment then only replaces the capital consumed during the period, so the capital stock remains approximately unchanged. If gross investment were greater, the stock would rise; if lower, it would fall.

Correct answer: A. Fifty crore

Explanation: Spending of ₹80 crore on new machines is treated as gross investment, while ₹30 crore of wear is depreciation. Net capital addition is found by subtracting depreciation from gross investment: ₹80 crore − ₹30 crore = ₹50 crore. The depreciation amount is not an addition to capital, and adding the figures would wrongly count capital consumed as new capital.

Correct answer: A. Net investment will decrease

Explanation: Net investment is calculated as gross investment minus depreciation. When gross investment remains fixed and depreciation increases, a larger amount is subtracted from the same gross figure. Consequently, net investment decreases. Depending on the starting values, it may remain positive, become zero or turn negative, but it cannot increase or exceed gross investment under these conditions.

Correct answer: B. Net investment will increase

Explanation: The formula is Net investment = Gross investment − Depreciation. If depreciation stays constant and gross investment increases, the same fixed amount is subtracted from a larger gross amount. Net investment therefore increases by the same change. Its final value could still be negative, zero or positive depending on the initial figures, but its direction of change is clearly upward.

Correct answer: C. Net investment is negative

Explanation: Capital stock falls when the amount of capital consumed through depreciation is greater than the new capital added. In symbols, gross investment minus depreciation is less than zero, which means net investment is negative. Positive net investment indicates growth and zero net investment indicates no net change. Zero depreciation alone does not indicate a fall in capital stock.

Correct answer: A. Positive net investment

Explanation: Net investment equals gross investment minus depreciation. A positive value means that additions to capital exceed the capital consumed during the period. The economy or firm therefore ends with a larger capital stock than it began with. Zero net investment leaves the stock unchanged, while depreciation greater than gross investment produces negative net investment and a decline.

Correct answer: B. Replacement investment

Explanation: Replacement investment is expenditure used to replace capital goods that have worn out or become obsolete. If a factory buys only enough new machines to replace old ones, productive capacity is generally maintained rather than expanded. In the simple accounting case, gross investment equals depreciation and net investment is zero. This is not household consumption or export growth.

Correct answer: C. Positive net investment

Explanation: Capital stock expands when investment exceeds the amount required to replace depreciated capital. The excess is positive net investment. Depreciation represents the consumption of existing capital, not an addition. Zero net investment merely maintains the stock, and replacement investment restores lost capacity without increasing it. Therefore, positive net investment is the only option that represents real expansion.

Correct answer: D. Purchase of new capital goods

Explanation: Depreciation is the consumption, wear or loss of value of existing fixed capital during production or over time. Purchasing new capital goods is investment and is generally included in gross investment; it is not depreciation. The other three options describe the reduction in value or productive services of existing machines and other fixed assets.

Correct answer: A. Capital stock will generally remain stable

Explanation: Net investment equals gross investment minus depreciation. Here, 250 − 250 = 0, so there is no net addition to the capital stock. The investment is just enough to replace the capital consumed during the period. Under the usual accounting framework, the stock therefore remains stable. These figures do not imply that the stock rises, falls or becomes zero.

Correct answer: A. Its capital capacity is falling

Explanation: Negative net investment means gross investment is less than depreciation. The firm is adding less new capital than the amount of existing capital being consumed through wear or obsolescence. Its capital stock and potentially its productive capacity are therefore falling. It does not mean that capital has doubled or that depreciation is zero; greater gross investment would instead give positive net investment.

Correct answer: A. Net investment = 110

Explanation: Use the identity Net investment = Gross investment − Depreciation. Substituting the values gives 180 − 70 = 110, so option A is correct. Adding the two figures would produce 250, but addition is used to obtain gross investment from net investment and depreciation. The positive result also shows that gross investment exceeds depreciation.

Correct answer: B. Depreciation = 60

Explanation: Start with Gross investment = Net investment + Depreciation. Rearranging gives Depreciation = Gross investment − Net investment. Therefore, depreciation = 130 − 70 = 60, making option B correct. The net-investment figure alone is not depreciation, and the gross-investment figure alone is not depreciation. Their difference measures capital consumed.

Correct answer: C. Gross investment = 65

Explanation: The accounting identity is Gross investment = Net investment + Depreciation. Substituting the values gives 40 + 25 = 65, so option C is correct. The gross amount includes both the replacement of capital consumed through depreciation and the additional capital represented by net investment. Subtracting the figures would answer a different question.