Gross investment and depreciation

Correct answer: A. 20 crore

Explanation: The relationship is Gross Investment = Net Investment + Depreciation. Substituting the values gives Gross Investment = (−10) + 30 = 20 crore. Negative net investment means that depreciation exceeded new investment by 10 crore; it does not mean that gross investment was negative. Gross investment records the actual investment expenditure, so option A is correct.

Correct answer: B. Obsolescence

Explanation: Obsolescence occurs when a machine loses usefulness or market value because newer and better technology becomes available. The machine may still physically work, but it becomes less efficient or less desirable than its modern substitute. This differs from ordinary wear and tear, which results mainly from use and physical deterioration. Consumption expenditure and tax payment are unrelated concepts.

Correct answer: B. 110

Explanation: Net investment measures the addition to capital stock after the capital consumed during the period is allowed for. The formula is Net Investment = Gross Investment − Depreciation. Therefore, 150 − 40 = 110. The value 190 would result from an incorrect addition, while 40 and 150 are only depreciation and gross investment respectively. Hence, option B is correct.

Correct answer: A. 25

Explanation: Gross investment consists of net investment plus the amount needed to replace depreciated capital. Thus, Gross Investment = Net Investment + Depreciation. Rearranging gives Depreciation = 90 − 65 = 25. The value 65 is the given net investment, and 90 is the given gross investment; 155 is an incorrect sum. Therefore, option A correctly gives depreciation.

Correct answer: C. 110

Explanation: Gross investment includes two parts: the net addition to capital and the investment required to replace depreciated capital. Hence, Gross Investment = Net Investment + Depreciation = 75 + 35 = 110. Subtracting the figures would not produce gross investment because both components are included in the total. Therefore, option C is correct.

Correct answer: D. Capital stock will remain approximately constant

Explanation: Net investment equals Gross Investment − Depreciation. When the two amounts are equal, net investment is zero. This means that investment exactly replaces the capital consumed during the period, so the existing capital stock remains approximately unchanged, assuming no other capital flows or changes. It does not mean that the stock becomes zero or doubles. Thus, option D is correct.

Correct answer: C. Gross investment is greater than depreciation

Explanation: Net investment is calculated as Gross Investment − Depreciation. It is positive only when gross investment exceeds depreciation, because investment then replaces the lost capital and adds some extra capital. Equality produces zero net investment, while a smaller gross investment produces a negative value. Therefore, the condition in option C is necessary for a positive net addition to capital stock.

Correct answer: B. 0

Explanation: Use the identity Net Investment = Gross Investment − Depreciation. Substituting the equal values gives 120 = 120 − Depreciation, so depreciation must be zero. Equivalently, depreciation is the difference between gross and net investment, and 120 − 120 = 0. The value 240 is an incorrect sum, while 120 is not the required difference. Hence, option B is correct.

Correct answer: C. −15

Explanation: Net investment is obtained by subtracting depreciation from gross investment: 55 − 70 = −15. The negative sign is important because depreciation exceeds new investment. It indicates that, assuming no other additions, the capital stock falls by 15 units. A positive 15 ignores the direction of the calculation, and 125 is an incorrect addition. Therefore, option C is correct.

Correct answer: B. To replace worn-out capital

Explanation: Replacement investment is spending on capital goods that restores productive assets lost through physical wear, damage, ageing, or depreciation. Its purpose is to maintain the existing level of productive capacity, not necessarily to expand it. Expansion beyond replacement is represented by net investment. Consumption goods, tax revenue, and imports are separate economic concepts, so option B is correct.

Correct answer: C. Zero

Explanation: If gross investment exactly equals depreciation, Net Investment = Gross Investment − Depreciation gives zero. The investment is sufficient to replace the capital consumed during the period, so the existing capital stock is maintained without any additional net capital formation. It is not always negative; a negative result occurs only when depreciation is greater than gross investment. Therefore, option C is correct.

Correct answer: C. Net investment

Explanation: Net investment is the amount remaining after depreciation is deducted from gross investment. It represents the addition to the capital stock during the period and can expand productive capacity. Replacement investment only restores capital that has been lost, depreciation reduces the value of capital, and consumption expenditure is used for current goods and services rather than capital formation. Thus, option C is correct.

Correct answer: D. Capital stock is decreasing

Explanation: Negative net investment means that Gross Investment − Depreciation is less than zero. In other words, the economy is adding less new capital than it is losing through wear, ageing, or obsolescence. If no other capital additions occur, the capital stock therefore declines. Positive net investment indicates growth and zero net investment indicates approximate stability, so option D is the only correct conclusion.

Correct answer: A. 220

Explanation: The formula is Net Investment = Gross Investment − Depreciation. Substituting the figures gives 300 − 80 = 220. This means that after replacing the 80 units of capital consumed through depreciation, the economy adds 220 units of net capital. The value 380 is an incorrect sum, while 80 and 300 are the given depreciation and gross investment figures. Hence, option A is correct.

Correct answer: B. 200

Explanation: Gross investment includes both net investment and the amount required to replace depreciated capital. Therefore, Gross Investment = Net Investment + Depreciation = 140 + 60 = 200. Subtracting the values gives 80, but that is not the total investment. The figures 140 and 60 are the separate components, so option B correctly gives gross investment.

Correct answer: C. 50

Explanation: Since Gross Investment = Net Investment + Depreciation, depreciation is found by subtracting net investment from gross investment. Thus, Depreciation = 210 − 160 = 50. Adding the two figures gives 370, which does not follow the identity. The values 210 and 160 are the given gross and net amounts, not depreciation. Therefore, option C is correct.

Correct answer: D. Obsolescence

Explanation: Obsolescence is depreciation caused by a capital good becoming outdated or less useful, usually because newer technology performs the same task more efficiently. The machine may not be physically damaged, but its economic value falls. Wage changes, tax changes, and higher consumption do not define this process. Physical wear is another cause of depreciation, but the clue here is specifically becoming outdated.

Correct answer: A. Wear and tear

Explanation: Wear and tear is the gradual physical deterioration of a machine, building, or other capital good caused by regular use and the passage of time. It reduces efficiency or useful service life and is therefore a direct cause of depreciation. Foreign trade, tax rebates, and population growth may influence economic activity, but they are not the physical depreciation process described in the question.

Correct answer: A. Because it includes both net investment and depreciation

Explanation: Gross investment measures the entire investment expenditure on capital goods during a period. It includes replacement investment, which compensates for depreciation, and net investment, which adds to the capital stock. Therefore, Gross Investment = Net Investment + Depreciation. Taxes, wages, and imports may affect the economy, but they are not the two components that define gross investment in this context.

Correct answer: C. 0

Explanation: The net addition to capital stock is measured by net investment. Calculate it as Gross Investment − Depreciation = 100 − 100 = 0. The investment fully replaces the capital consumed during the year, so the existing stock is maintained but no additional capital is formed. The answer is not 100, because that is gross investment or depreciation individually, and it is not −100.

Correct answer: C. It will decrease

Explanation: First calculate net investment: 80 − 120 = −40. Since depreciation is greater than gross investment, the economy loses more capital than it replaces or adds. Assuming no other capital additions, the capital stock therefore decreases by 40 units. Equal amounts would keep it approximately stable, while a positive difference would increase it. Hence, option C is correct.

Correct answer: B. There will be a net increase in capital stock

Explanation: Net investment = Gross Investment − Depreciation = 180 − 50 = 130. The positive result means that investment first replaces the 50 units of depreciated capital and then creates an additional net addition of 130 units. Consequently, the capital stock increases, assuming no offsetting changes. Equal gross investment and depreciation would imply no net change, so option B is correct.

Correct answer: C. Replacement investment

Explanation: Investment made specifically to replace capital goods that have become worn out or unusable is called replacement investment. It compensates for the loss of capital caused by depreciation and maintains the existing capital stock, but it does not create a net addition to that stock. Export, consumption, and tax are not names for this investment category. Therefore, option C is correct.

Correct answer: D. Depreciation replacement part

Explanation: The replacement portion of gross investment compensates for capital consumed through depreciation. It restores worn-out machines, buildings, and other fixed assets, so the capital stock remains at its previous level when replacement equals depreciation. Net investment is different because it changes the size of the capital stock. Tax and consumption are not components of gross investment. Hence, option D is correct.

Correct answer: A. Net investment = Gross investment - Depreciation

Explanation: Net investment measures the addition to the capital stock after allowing for capital used up during the period. Therefore, depreciation must be subtracted from gross investment: Net investment = Gross investment − Depreciation. If the two amounts are equal, net investment is zero; if depreciation is larger, it is negative. The other formulas either reverse the subtraction or use unrelated variables. Thus, option A is correct.