If depreciation (consumption of ﬁxed capital) exceeds gross domestic investment, we can conclude that
A) nominal GDP is rising but real GDP is declining.
B) net investment is negative.
C) the economy is importing more than it exports.
D) the economy's production capacity is expanding.

Question

Quizplus · Accepted Answer

Gross domestic investment refers to the total amount spent on capital goods within an economy in a particular period, while depreciation refers to the decrease in value of those same capital goods due to wear and tear. If depreciation exceeds gross domestic investment, then the economy is not investing enough to replace its worn-out capital stock, resulting in a decrease in the economy's production capacity. This means that net investment is negative.

If Depreciation (Consumption of ﬁXed Capital) Exceeds Gross Domestic Investment