Question

If depreciation (consumption of fixed capital) exceeds gross investment, it can be concluded that:

a) nominal GDP is rising, but real GDP is declining.
b) the economy is importing more than it exports.
c) net investment is negative.
d) the economy is expanding.

Answer 1

C) net investment is negative.

If depreciation (consumption of fixed capital) exceeds gross investment, that means that investment has not been able to keep up with the rate of consumption. This implies that net investment is negative, as gross investment minus depreciation must be a negative number. A negative net investment signifies that the economy is not expanding.