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Explain gross and net investment. |
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Answer» Gross Investment – Increase in value of capital goods during a specific period is called gross investment. Examples of gross investment are new machine, new building, new dam, new canal, new- equipment for generation of electricity and electricity lines, etc. Already in use machines, old houses, old dams and expenditure on repairs of old canals are also included in gross investment. Gross investment = Net investment + Depreciation Net Investment – To calculate net investment, we deduct depreciation on physical capital goods. If depreciation of physical capital goods, i.e. depreciation is deducted from gross investment, it will give us net investment. Production and productive capacity improves only along with increase in net investment. Net investment = Gross investment – Depreciation. |
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