Gross investment and depreciation

Correct answer: A. Both will be equal

Explanation: The relationship is Net Investment = Gross Investment − Depreciation. If net investment equals zero, then Gross Investment − Depreciation = 0, which means Gross Investment = Depreciation. In this situation, all new investment merely replaces capital that has worn out or been consumed; there is no net expansion of the capital stock. Hence, option A is correct.

Correct answer: B. 130 crore rupees

Explanation: The governing relationship is Net Domestic Capital Formation = Gross Domestic Capital Formation − Depreciation. Substituting the given values gives 180 − 50 = 130 crore rupees. Depreciation represents the capital used up during production, so it must be deducted from gross formation to find the net addition to the capital stock. Therefore option B is correct; option A adds the figures, while C ignores depreciation and D uses an unsupported subtraction.

Correct answer: C. Negative

Explanation: Net investment is calculated as gross investment minus depreciation. When gross investment is smaller than depreciation, the difference must be below zero, so net investment is negative. This indicates that new investment does not fully replace the capital consumed during production and the total capital stock declines. Option C is correct; a positive result requires gross investment to exceed depreciation, while zero occurs only when they are equal.

Correct answer: D. It will generally remain unchanged

Explanation: Net investment equals gross investment minus depreciation. If both amounts are equal, net investment is zero: gross investment − depreciation = 0. The new investment merely replaces the capital consumed through production, so it does not expand the existing capital stock. Therefore option D is correct, assuming no other capital gains, losses, or unusual changes. The other options imply changes unsupported by the equality.

Correct answer: B. Use and normal wear and tear

Explanation: Depreciation is the gradual loss of value or productive capacity of a fixed asset. Regular use, physical wear and tear, and the passage of time can reduce a machine’s efficiency and value. Changes in product demand, subsidies, or share prices do not directly represent normal depreciation of that machine.

Correct answer: C. Because it is not normal and expected wear

Explanation: Normal depreciation refers to the regular and expected consumption of fixed capital caused by ordinary use, ageing, or predictable obsolescence. A natural disaster destroys an asset suddenly and abnormally, so the resulting loss is treated as an accidental or capital loss rather than normal depreciation.

Correct answer: A. Capital stock is increasing

Explanation: The governing relationship is net investment = gross investment − depreciation. When net investment is positive, gross investment is greater than the capital consumed through depreciation. New additions to machinery, buildings or equipment therefore exceed the amount worn out, so the economy’s capital stock rises overall. Option A is correct. Positive net investment does not imply zero depreciation, and it cannot mean that gross investment did not occur.

Correct answer: A. Net investment 360 crore rupees and capital stock will rise

Explanation: Net investment measures the addition to the capital stock after allowing for depreciation. It is calculated as gross investment minus depreciation: 500 − 140 = 360 crore rupees. Since net investment is positive, capital formation exceeds the capital lost through wear and tear, so the capital stock increases.

Correct answer: B. Net investment is negative 40 crore rupees and capital stock will fall

Explanation: Net investment equals gross investment minus depreciation: 90 − 130 = −40 crore rupees. The negative result means that investment was insufficient to replace the capital consumed through depreciation. Consequently, the economy's capital stock falls by 40 crore rupees, assuming no other capital adjustment.

Correct answer: A. ₹9 lakh

Explanation: Net capital formation is obtained by subtracting depreciation, or consumption of fixed capital, from gross investment. Here, gross investment in the new machine is ₹10 lakh and depreciation is ₹1 lakh. Therefore, net capital formation = ₹10 lakh − ₹1 lakh = ₹9 lakh. The remaining amount represents the addition to the capital stock after replacing the consumed capital.

Correct answer: B. 40 crore rupees

Explanation: The governing capital-formation identity is net investment = gross investment − depreciation. The statement says gross investment is greater than depreciation by 40 crore rupees, so the subtraction gives 40 crore rupees. It is positive because replacement investment is fully covered and there is an additional increase in the capital stock. A negative result would require depreciation to exceed gross investment; equality would imply zero net investment.

Correct answer: A. 520 crore rupees and capital stock will rise

Explanation: Net investment is calculated by subtracting depreciation from gross investment: net investment = 760 − 240 = 520 crore rupees. Since this figure is positive, additions to capital exceed the capital consumed through depreciation, so the capital stock rises. Therefore, option A is correct. Option B adds the two amounts, C assigns the wrong sign, and D confuses depreciation with net investment.

Correct answer: B. Net investment is negative 65 crore rupees

Explanation: The governing formula is net investment = gross investment − depreciation. Substitution gives 220 − 285 = −65 crore rupees. The negative result means depreciation is greater than new investment, so the capital stock decreases by 65 crore rupees, assuming other factors are unchanged. Therefore, option B is correct; option A loses the negative sign, C adds the figures, and D ignores the shortfall.

Correct answer: A. 21 lakh rupees

Explanation: Net capital formation equals gross capital formation minus consumption of fixed capital, commonly represented here by depreciation. The firm’s gross investment is 24 lakh rupees and depreciation is 3 lakh rupees. Therefore, net capital formation = 24 − 3 = 21 lakh rupees. Option B is gross formation, C adds instead of deducting, and D is only depreciation.

Correct answer: B. ₹900 crore

Explanation: Net domestic capital formation is obtained by subtracting consumption of fixed capital, or depreciation, from gross domestic capital formation. Thus, NDCF = GDCF − depreciation = ₹1,400 crore − ₹500 crore = ₹900 crore. The result represents the net addition to the domestic capital stock after allowing for the capital that wore out during the period. Therefore, option B is correct.