1.

Distinguish between gross investment and net investment.

Answer»

Gross investment is the total production of capital goods in a year. This includes

  1. Net investment and
  2. Replacement investment. Replacement investment is that portion of gross investment that serves to replace the used up or worn out capital investment. It refers to the expenditure by the producers on account of depreciation of the fixed capital assets. Thus,

Gross Investment = Net Investment + Replacement Investment.

Net investment is the investment that results in an increase in capital stock. In other words, it is the investment over and above the replacement investment during a given period of time. Thus,

Net Investment = Gross Investment – Replacement Investment.


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