Gross investment and depreciation

Correct answer: A. Net investment will be negative

Explanation: Net investment is calculated as gross investment minus depreciation: Net Investment = Gross Investment − Depreciation. If an economy cannot fully replace the capital that wears out, its gross investment is less than depreciation. The difference is therefore negative, meaning the capital stock decreases rather than increases. A positive net investment or rapidly rising capital stock would require investment to exceed depreciation, while option C states the opposite condition.

Correct answer: A. When depreciation is different

Explanation: Net investment depends on both gross investment and depreciation: net investment = gross investment − depreciation. Thus, even if two economies invest the same gross amount, the economy with older or more heavily used capital may have greater depreciation and consequently lower net investment. Currency or population equality does not determine this calculation.

Correct answer: B. Net investment

Explanation: Gross investment records all spending on new and replacement capital, so it does not show how much capital has actually been added after replacing worn-out assets. Net investment removes depreciation from gross investment. When the two amounts are nearly equal, net investment is small, accurately indicating little real growth in the capital stock.

Correct answer: A. Increase of 40

Explanation: Apply the formula net investment = gross investment − depreciation. Substituting the values gives 1,000 − 960 = 40. Since the result is positive, investment has replaced all depreciated capital and added 40 units to the capital stock. The answer is not 1,000 because that ignores depreciation, and it is not a fall because the result is positive.

Correct answer: B. Net investment = Gross investment − depreciation

Explanation: Depreciation represents the part of the existing capital stock that has been used up or lost in value. To find the actual addition to capital, this amount must be deducted from total, or gross, investment. Therefore the correct identity is net investment = gross investment − depreciation. Adding or reversing the terms would give the wrong sign and interpretation.

Correct answer: B. Capital stock is decreasing

Explanation: Net investment measures the change in the capital stock after allowing for depreciation. A negative value means that depreciation is larger than gross investment, so the economy has not replaced all the capital that was used up. Consequently, the capital stock falls. Equality would produce zero net investment, while a positive value would indicate an increase.

Correct answer: A. Depreciation is zero

Explanation: The identity is net investment = gross investment − depreciation. If net investment and gross investment have exactly the same value, subtracting depreciation has made no difference. Their difference is therefore zero, so depreciation is zero under the assumptions of the question. Option C would generally make net investment smaller than gross investment, not equal to it.

Correct answer: B. One hundred fifty lakh rupees

Explanation: The expenditure on new capital goods represents gross investment, equal to 200 lakh. The net increase in the capital stock is net investment, equal to 50 lakh. Using Net Investment = Gross Investment − Depreciation, depreciation = 200 − 50 = 150 lakh. Thus, 150 lakh of the investment merely replaced worn-out capital, and the remaining 50 lakh added to the capital stock. Therefore, option B is correct.

Correct answer: C. Gross investment equals depreciation

Explanation: Replacement investment is the amount needed to replace capital that has worn out. When gross investment exactly equals depreciation, all investment is used for this replacement and nothing remains as an addition to the capital stock. Hence net investment is zero. If gross investment exceeded depreciation, the excess would represent expansionary or net investment.

Correct answer: B. Subtract depreciation from gross capital formation

Explanation: Gross capital formation includes investment used both to replace depreciated capital and to add new capital. To find the net addition, the amount of capital consumed or worn out must be removed. Thus net capital formation = gross capital formation − depreciation. Addition, multiplication, or ignoring the gross figure does not represent the accounting relationship.

Correct answer: A. Net decrease of 40 in capital stock

Explanation: Use net investment = gross investment − depreciation. The calculation is 600 − 640 = −40. The negative sign means that depreciation exceeded new investment by 40, so the economy failed to replace all the capital that was consumed. Consequently, the capital stock experienced a net decrease of 40, not an increase or a zero change.

Correct answer: A. Gross investment includes depreciation while net investment has depreciation deducted

Explanation: Gross investment is the total investment in capital goods, including the amount needed to replace capital that has depreciated. Net investment removes that replacement requirement and therefore equals gross investment minus depreciation. Consequently, net investment is normally less than or equal to gross investment when depreciation is non-negative. The other statements confuse investment with consumption or exports.

Correct answer: A. 270

Explanation: Net investment is obtained by subtracting depreciation from gross investment. Therefore, net investment = 450 − 180 = 270. The result is positive, so the capital stock rises by 270 units, assuming other relevant factors are unchanged. The value 630 comes from adding the figures, while 180 and 450 are individual inputs rather than the net amount.

Correct answer: A. 125

Explanation: Start with net investment = gross investment − depreciation. Rearranging gives depreciation = gross investment − net investment. Substituting the values, depreciation = 220 − 95 = 125. Adding the two figures would incorrectly produce 315, while 95 and 220 are the given net and gross amounts, not the depreciation calculated from their difference.

Correct answer: B. Gross investment equals depreciation

Explanation: Capital stock remains unchanged when the addition of capital exactly offsets the capital consumed during the period. This occurs when gross investment equals depreciation, because net investment = gross investment − depreciation = zero. If gross investment is greater, the stock tends to rise; if it is smaller, the stock tends to fall. Thus option B represents replacement only.

Correct answer: A. 45 and capital rise

Explanation: Calculate net investment by subtracting depreciation from gross investment: 90 − 45 = 45. Since the result is positive, the economy has replaced the 45 units of capital consumed and added another 45 units to its capital stock. Zero would result only if the two amounts were equal, while 135 would incorrectly add gross investment and depreciation.

Correct answer: C. Negative 40 and capital fall

Explanation: Use net investment = gross investment − depreciation. The calculation is 75 − 115 = −40. Depreciation is 40 greater than gross investment, so the economy has not replaced all the capital consumed during the period. The capital stock therefore falls by 40. A positive 40 would reverse the subtraction, and 190 would incorrectly add the two values.

Correct answer: A. Net investment ninety and depreciation sixty so gross investment one hundred fifty

Explanation: Gross investment includes both replacement of worn-out capital and the net addition to capital. Therefore, gross investment = net investment + depreciation. Substituting the given values gives 90 + 60 = 150. The other figures result from subtraction or from using only one component, so they do not represent gross investment.

Correct answer: A. Net domestic product will be overstated

Explanation: Net domestic product is obtained by subtracting consumption of fixed capital, or depreciation, from gross domestic product: NDP = GDP − depreciation. If depreciation is not deducted, the reported figure still contains the value of capital used up during production. Consequently, NDP is overstated; GDP itself is not thereby made negative.

Correct answer: B. Three hundred fifty lakh

Explanation: Net investment is calculated by subtracting depreciation from gross investment. First, depreciation equals 30% of 500 lakh: 0.30 × 500 = 150 lakh. Therefore, net investment = 500 − 150 = 350 lakh. Option A gives only the depreciation amount, while option C ignores depreciation. Option D incorrectly adds depreciation instead of subtracting it.

Correct answer: A. Net investment is zero

Explanation: Net investment measures the part of gross investment left after replacing capital consumed during the period. Using net investment = gross investment − depreciation, equal values give zero. Thus all investment merely maintains the existing capital stock. A positive net investment would require gross investment to exceed depreciation, not equal it.

Correct answer: A. Gross investment will equal their sum and be positive

Explanation: The accounting identity is gross investment = net investment + depreciation. Since both components are positive, their sum is necessarily positive and is greater than either component individually. Therefore option A is correct. The other options violate the identity or incorrectly treat investment as a negative or zero quantity.

Correct answer: B. Capital replacement only

Explanation: Calculate net investment as gross investment minus depreciation: 40 − 40 = 0. A zero result means that the investment exactly replaces the capital consumed during the year, without adding extra capital. Hence it is capital replacement only. Net expansion would require gross investment above 40, and the figures do not imply that capital is absent.

Correct answer: C. Zero net investment

Explanation: Zero net investment means gross investment is exactly equal to depreciation. The investment replaces the capital used up during production, so the existing capital base can be maintained without a net addition. Positive net investment would expand capacity, while negative net investment or depreciation exceeding gross investment would reduce the capital stock.

Correct answer: A. One hundred ten

Explanation: Net investment is the portion of gross investment remaining after depreciation is deducted. Applying the formula gives 160 − 50 = 110. Thus 110 units are added to the capital stock on a net basis. Fifty is only depreciation, 210 is an incorrect addition, and zero would be possible only if the two given amounts were equal.