Given below are some statements. Read them carefully and choose the correct statement (s) from the given options.

Statement 1: That part of our final output that comprises of capital goods constitutes gross investment of an economy.

Statement 2: All the capital goods produced in a year constitute an addition to the capital stock already existing.  

Only Statement 1 is correct.

The correct answer is Option 1: Only Statement 1 is correct.

Statement 1: That part of our final output that comprises of capital goods constitutes gross investment of an economy. This is correct.

Statement 2: All the capital goods produced in a year constitute an addition to the capital stock already existing.  This is incorrect. All the capital goods produced in a year do not constitute an addition to the capital stock already existing. A significant part of current output of capital goods goes in maintaining or replacing part of the existing stock of capital goods. This is because the already existing capital stock suffers wear and tear and needs maintenance and replacement. A part of the capital goods produced this year goes for replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment.

NCERT text: "That part of our final output that comprises of capital goods constitutes gross investment of an economy . These may be machines, tools and implements; buildings, office spaces, storehouses or infrastructure like roads, bridges, airports or jetties. But all the capital goods produced in a year do not constitute an addition to the capital stock already existing. A significant part of current output of capital goods goes in maintaining or replacing part of the existing stock of capital goods. This is because the already existing capital stock suffers wear and tear and needs maintenance and replacement. A part of the capital goods produced this year goes for replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment. 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 Net Investment = Gross investment – Depreciation"