Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: National Income Accounting

Question:

Which of the following is NOT true?
a) Gross investment = Net investment + Depreciation
b) New addition to capital stock in an economy is measured by gross investment.
c) In a specific time period, the total production of final goods can be either in the form of consumption or investment.

Options:

a, b and c

a and b

b and c

none of these

Correct Answer:

none of these

Explanation:

The correct answer is Option 4: None of these

Statement a) Gross investment = Net investment + Depreciation : This is correct. Gross investment represents the total investment made in the economy, including both new additions to the capital stock and replacement of depreciated capital. Net investment, on the other hand, represents the increase in the capital stock and is calculated by subtracting depreciation from gross investment.


Statement  b)
New addition to capital stock in an economy is measured by gross investment. This is incorrect. New addition to capital stock in an economy is measured by net investment (NOT GROSS INVESTMENT) or new capital formation, which is expressed as Net Investment = Gross investment - Depreciation.


Statement  c)
In a specific time period, the total production of final goods can be either in the form of consumption or investment. This is correct. This is a fundamental concept in macroeconomics. The total output of an economy can be divided into consumption goods (consumed by households) and investment goods (used to produce future goods and services).

Thus, only statement b is incorrect. The other statements a and c are correct. In this  question we have to find out incorrect statement (s). Since there is no option of "b only", none of the above is the only correct option for this question.