What is difference between gross investment and net investment??Explain in detail (if possible with example).
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The total addition made to the capital stock of economy in a given period is termed as Gross Investment. Capital stock consists of fixed assets and unsold stock. So, gross investment is the expenditure on purchase of fixed assets and unsold stock during the accounting year.
However, gross investment does not indicate the actual change in economy’s stock of productive assets for a given year. During the production process, some amount of fixed capital is used up. This loss of fixed capital is known as depreciation. By subtracting depreciation from gross investment, we get Net Investment.Net Investment:
The actual addition made to the capital stock of economy in a given period is termed as Net Investment.
Net Investment = Gross Investment – Depreciation
Let us now understand the meaning of depreciation.