Define Gross Investments.
Define Gross Investments.
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Solution and Explanation
Investment means adding to the stock of capital, such as machines, buildings and stocks of goods. The word "gross" tells us that nothing has been subtracted from this addition.
Step 2: Key idea of the definition:
Capital wears out with use. This loss is called depreciation (wear and tear).
Gross investment includes the new addition to capital and also the part that only replaces the worn out capital.
\[ \text{Gross Investment} = \text{Net Investment} + \text{Depreciation} \]
Step 3: Detailed Explanation:
Suppose a firm adds machines worth Rs. 100 crore and Rs. 20 crore of its old machines wore out.
Net addition to capital is Rs. 80 crore, but gross investment is Rs. 100 crore because the replacement is also counted.
Final Answer:
Gross investment is the addition to the capital stock, which includes the replacement for the wear and tear that the capital stock suffers.
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