In the context of wear and tear in production process, the replacement investment is same as ______.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1: Depreciation of Capital.
Explanation:
- During the production process, the normal wear and tear that occurs in fixed capital—such as machinery, equipment, and buildings—due to continuous usage is termed *Depreciation*.
- Replacement Investment: When new machinery is installed to replace old or worn-out machines in order to maintain the existing level of production, it is referred to as *Replacement Investment*. In economics, this amount is considered to be equivalent to depreciation.
- Significance: If an economy fails to make investments equivalent to its depreciation, its productive capacity will gradually begin to decline.
Important Economic Formulas (Quick Revision):
As you prepare for the SSC CGL and RRB NTPC examinations, the following formulas related to *National Income* are frequently asked:
- Net Investment:
- Gross Investment - Depreciation
- Net National Product (NNP):
- Gross National Product (GNP) - Depreciation
- Net Domestic Product (NDP):
- Gross Domestic Product (GDP) - Depreciation
Important Questions for Upcoming Examinations:
Question: What is the primary difference between the concepts of 'Gross' and 'Net'?
Answer: Depreciation.
Question: By what other name is depreciation known?
Answer: Consumption of Fixed Capital.
Question: If Net Investment is zero, what does this imply?
Answer: It implies that Gross Investment is merely sufficient to cover depreciation (wear and tear), and no new capital is being created.