If gross investment is consistently higher than depreciation, the net investment figure will be positive, indicating that the company's productive capacity is increasing.
You could say that the business grossed over $300,000 in a month but netted only $3,000. The country’s future production capacity and GDP remain the same and the PPC curve does not shift in either direction. Net Investment includes depreciation. Assume that the monetary value of a country’s machinery totals $10 million at the beginning of the year, while depreciation during the year totals $2 million, and $5 million was invested during the year.Net investment equals $3 million ($5 million gross – $2 million depreciation). Similarly, if gross investment is less that depreciation, then in that case the net investment tends to be negative and the capital stock declines.To understand the difference, one one can consider this example, a factory starts the year with 20 machines.
Copyright © 2020, Difference Between | Descriptive Analysis and Comparisons This question is for testing whether or not you are a human visitor and to prevent automated spam submissions. Key Difference: Gross investment refers to the total expenditure on buying capital goods over a specific period of time without considering depreciation. These capital goods increase the country’s future production capacity, thereby shifting the Production Possibility Curve upwards, and increasing GDP. Gross investment includes the total of all investments made in a country during one year. What's the difference between Gross Investment & Net Investment? Click card to see definition Gross Investment is investment in replaced and added capital. The country, however, does not benefit from the all of the money invested in machines and equipment because some machines age during the year.
Another word for the wearing out of machines is depreciation. Net investment represents the actual amount of investments in the country taking into account depreciation of existing equipment.A net investment that is greater than 0 indicates an increase in capital goods in a country. This depreciation is related to some investment which needs to be made in order to replace obsoleted or worn out assets like plants and machineries.Or we can say that, Net investment = gross investment – depreciationIf gross investment is greater than depreciation over any period of time then it directly refers that the net investment is positive which further implies that the capital stock has increased. Gross Investment, Net Investment and Depreciation Gross Investment:. It is basically gross investment minus the depreciation on existing capital. Net investment equals gross investment, minus annual wear and tear. The actual addition made to the capital stock of economy in a given period is termed as Net Investment.
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