Gross investment and depreciation

Correct answer: B. Productive capacity may rise

Explanation: Net investment equals gross investment minus depreciation. When it is positive, new investment is greater than the value of capital worn out during the period. Consequently, the capital stock can rise, allowing the economy to produce more goods and services over time. The word “generally” matters: option B states the likely effect, whereas the other options deny or reverse the link between investment and productive capacity.

Correct answer: B. Negative 15 crore

Explanation: Use the identity Net Investment = Gross Investment − Depreciation. Substitution gives 20 − 35 = −15 crore. The negative result means that depreciation exceeded new investment, so the economy did not fully replace the capital used up during the period and its capital stock fell by 15 crore in net terms. Adding the figures would incorrectly give 55 crore.

Correct answer: A. 50 crore

Explanation: Net investment is obtained by subtracting depreciation from gross investment. Therefore, 75 − 25 = 50 crore. The result represents the addition to capital stock after allowing for the capital consumed during the period. Adding the two amounts would produce 100 crore, while 25 and 75 are only the depreciation and gross-investment figures already given.

Correct answer: A. 45 crore

Explanation: The relationship is Gross Investment = Net Investment + Depreciation. Rearranging gives Depreciation = Gross Investment − Net Investment. Hence, depreciation = 80 − 35 = 45 crore. The amounts 35 and 80 are the net and gross values supplied in the question, and 115 would result from an incorrect addition rather than from isolating depreciation.

Correct answer: B. 20 crore

Explanation: Gross Investment = Net Investment + Depreciation. Substituting the values gives 0 + 20 = 20 crore. This is a replacement-only situation: all gross investment covers the capital consumed through depreciation, so the capital stock does not increase in net terms. Zero is the value of net investment, not gross investment, making option B correct.

Correct answer: B. Depreciation

Explanation: In national-income accounting, a gross measure includes the amount associated with capital used up, while the corresponding net measure is obtained after deducting depreciation. Thus, Net Investment = Gross Investment − Depreciation and Net Domestic Product = Gross Domestic Product − Depreciation. Taxes, exports and population are not the general adjustment separating gross from net measures.

Correct answer: B. Wear and tear will be replaced

Explanation: Replacing an old machine with a new machine of the same capacity restores the capital lost through wear and tear. It is replacement investment and forms part of gross investment. Since productive capacity has not been increased beyond the earlier level, a net rise in capital stock is not certain. The purchase alone also gives no necessary conclusion about consumption expenditure or exports.

Correct answer: C. Net investment along with replacement

Explanation: The replacement machine restores capital lost through depreciation, while the additional machine raises the capital stock above its previous level. Therefore, the total investment includes replacement investment as well as net investment. It is not merely depreciation, consumption or tax payment. The word “additional” is decisive because it shows an expansion of productive capital beyond simple maintenance.

Correct answer: A. Fixed capital

Explanation: Depreciation mainly concerns fixed capital assets such as machines, buildings and equipment. Their value or productive service declines because of use, age or obsolescence. Working capital is consumed or transformed during the production cycle and is not ordinarily the asset category meant by depreciation in this context. Human wants and transfer income are not forms of physical capital at all.

Correct answer: C. Negative

Explanation: Net Investment = Gross Investment − Depreciation. With gross investment equal to zero and depreciation positive, the calculation is 0 minus a positive amount, which must be negative. Existing capital is wearing out without any investment to replace it, so the capital stock may decline. It cannot be positive or zero under the conditions given, and infinity has no meaning here.

Correct answer: A. When depreciation is zero

Explanation: The formula is Net Investment = Gross Investment − Depreciation. Net and gross investment can be equal only when the amount subtracted, depreciation, is zero. If gross investment equals depreciation, net investment becomes zero rather than equal to gross investment, except in the special case where both are zero. Consumption is not part of this identity, so option A is the intended and general condition.

Correct answer: B. When net investment is zero

Explanation: Gross investment has two parts: replacement investment that covers depreciation and net investment that adds to the capital stock. If net investment is zero, gross investment equals depreciation, so all investment merely replaces worn-out capital. Positive net investment would indicate expansion, while zero depreciation would remove the replacement requirement. The level of consumption does not define this relationship.

Correct answer: A. Net investment and depreciation

Explanation: The identity is Gross Investment = Net Investment + Depreciation. Net investment represents the addition to the capital stock, while depreciation represents the portion of capital used up and requiring replacement. Adding these two components gives total investment spending. Consumption, taxes, wages, rent, imports and population may be important economic variables, but they are not the components in this specific accounting identity.

Correct answer: A. Not wages but depreciation

Explanation: A machine is a fixed capital asset. When its value or productive usefulness falls because repeated use causes wear, the reduction is called depreciation. Wages are payments made to workers for their labour and do not measure the loss in value of machinery. Taxes, exports, imports, profit and saving are also different concepts, so only option A identifies the relevant accounting idea.

Correct answer: B. Subtract depreciation

Explanation: Net investment measures the capital added after allowing for the capital consumed through wear, age or obsolescence. Therefore, the correct calculation is Net Investment = Gross Investment − Depreciation. Adding depreciation would count replacement needs twice and overstate the addition to capital. Consumption and taxes are not the adjustments used to convert a gross investment measure into a net one.

Correct answer: B. Subtract net investment from gross investment

Explanation: Start with Gross Investment = Net Investment + Depreciation. To isolate depreciation, subtract net investment from both sides: Depreciation = Gross Investment − Net Investment. Thus, the difference between gross and net investment gives the value of capital used up during the period. Adding the investment figures, or using consumption and tax, cannot isolate depreciation and is therefore incorrect.

Correct answer: A. Add net investment and depreciation

Explanation: The accounting identity is Gross Investment = Net Investment + Depreciation. Net investment measures the new addition to capital, while depreciation measures the capital used up during the period. Adding them restores the total investment figure. Subtracting depreciation gives neither the general gross measure nor the required total, and consumption, taxes and imports are unrelated to this particular calculation.

Correct answer: A. Positive net investment can increase capital stock

Explanation: Net investment is the change in capital stock after depreciation has been allowed for. If it is positive, gross investment exceeds the capital consumed, so the capital stock can rise. Negative net investment indicates a net reduction, while zero net investment normally means that investment only maintains the existing stock. Therefore, option A correctly states the relationship and the other options reverse or deny it.

Correct answer: A. Depreciation shows wearing out of capital stock

Explanation: Depreciation records the decline in the value or productive service of fixed capital because of use, age or obsolescence. It therefore shows the wearing out of part of the capital stock. Depreciation itself does not increase capital and is not a payment of tax or wages. Replacement investment may offset the decline, but replacement is a separate investment activity rather than depreciation itself.

Correct answer: B. Gross investment equal to depreciation

Explanation: When gross investment equals depreciation, all investment merely replaces the capital consumed during the period. Net Investment = Gross Investment − Depreciation = 0, so the capital stock is maintained rather than expanded. If gross investment is greater than depreciation, net investment is positive and capital grows; if investment is zero while depreciation is positive, the capital stock declines.

Correct answer: A. Depreciation

Explanation: Technological obsolescence reduces the value or productive usefulness of machines even when physical breakdown is not the only cause. Other things being equal, faster obsolescence increases the depreciation recorded on fixed capital and may raise the need for replacement investment. It does not automatically make investment zero, and it does not directly determine population stock or transfer income. Therefore, A is correct.

Correct answer: A. Gross investment—total investment; depreciation—wear of capital

Explanation: Gross investment refers to total investment spending, including both replacement investment and the net addition to capital. Depreciation is the loss of value or productive service of fixed capital caused by use, age or obsolescence. Wages, consumption, taxes, exports, imports and saving are separate concepts, so the pair in option A is the only one that gives both definitions correctly.

Correct answer: A. Whether depreciation is given

Explanation: The key difference between gross and net investment is depreciation. First check whether depreciation is supplied, because the main formula is Net Investment = Gross Investment − Depreciation. If gross and net investment are given instead, their difference reveals depreciation. Consumer taste, population language and weather may matter in other contexts, but they are irrelevant to solving this accounting relationship.

Correct answer: A. 40 crore

Explanation: Apply Net Investment = Gross Investment − Depreciation. Therefore, 120 − 80 = 40 crore. The positive result means gross investment exceeded the capital consumed through depreciation; after replacing worn-out capital, 40 crore remained as a net addition to the capital stock. Adding the figures gives the incorrect 200 crore, while options B and D merely repeat one of the supplied values.

Correct answer: B. Only replacement of worn-out capital

Explanation: The identity is Net Investment = Gross Investment − Depreciation. Here, net investment equals 40 − 40 = 0 crore. Thus, the whole gross investment merely replaces capital lost through physical wear, ageing, or obsolescence. Existing productive capacity is maintained, but no additional capital stock is created. Therefore, the situation represents only replacement of worn-out capital, not growth or zero depreciation.