Question

Clarify the difference between gross investment and net investment.

Answer 1

Net Investment

1) It is estimated by subtracting capital depreciation from gross investment.

2) Net investment = gross investment – depreciation

3) Generally, considered to be a better indicator than gross investment

Gross Investment

1) The total amount spent on purchasing new assets

2) Gross Investment = a total purchase or construction of new capital good

3) Not considered to be a better indicator in comparison to net investment.

Answer 2

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• Gross Investment is referred to as the total expenditure that is made for buying capital goods over a time period, without accounting for depreciation.

• Net Investment is the actual addition that is made to capital stock in a given period.