Which of the following relationships is correct?

Question

Quizplus · Accepted Answer

Gross investment represents the total investment in new capital goods (machinery, equipment, buildings, etc.), while net investment is the change in the stock of capital goods (gross investment minus depreciation). Therefore, by adding depreciation to net investment, we get back to the original level of gross investment. Hence, option A is correct.

Option B is incorrect because consumption expenditure is not related to investment (neither net nor gross), but rather refers to the purchase of goods and services by households.

Option C is incorrect because it suggests that gross investment is equal to the sum of net investment and depreciation, which is the opposite of what we just explained in option A.

Option D is also incorrect because it suggests that depreciation is equal to the difference between gross investment and consumption expenditure, which is not relevant to the relationship between investment and depreciation.

Option E is also incorrect because it refers to an unrelated relationship between saving and investment, where taxes are subtracted from gross investment to obtain saving.

Which of the Following Relationships Is Correct