On 1 January of Year 1, the capital stock of an economy is Rs 1,000 crore. In Year 1, gross investment is Rs 200 crore and depreciation Rs 80 crore. In Year 2, gross investment is Rs 150 crore and depreciation Rs 90 crore. What is the capital stock at the end of Year 2, and what is net investment in Year 2?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Capital stock Rs 1,180 crore; net investment Rs 60 crore
Given:
Capital stock on 1 January, Year 1 = Rs 1,000 crore
Year 1: gross investment 200, depreciation 80
Year 2: gross investment 150, depreciation 90
Only net investment adds to the capital stock. The stock is carried from year to year.
Net investment, Year 1 = 200 − 80 = 120
Net investment, Year 2 = 150 − 90 = Rs 60 crore
Capital stock at the end of Year 2 = 1,000 + 120 + 60 = Rs 1,180 crore
Rs 150 crore is Year 2’s gross investment, before depreciation.
NCERT (2026-27): “2.1 Some Basic Concepts of Macroeconomics … This deletion, which is made from the value of gross investment in order to accommodate regular wear and tear of capital, is called depreciation. So new addition to capital stock in an economy is measured by net investment or new capital formation, which is expressed as |