This question uses a common analogy from economics to distinguish between 'flow' and 'stock' variables. Understanding this distinction is crucial for various economic concepts. The water-tank analogy helps visualize these concepts clearly.
Correct Option: B) Stock — The amount of water in the tank at a specific point in time is a measure of quantity at that instant, which is the definition of a stock variable. In economics, examples of stock variables include wealth, capital, and money supply.
This question asks for the definition of Net Investment. Understanding the difference between gross and net concepts in economics, particularly regarding investment and capital, is crucial. Depreciation plays a key role in converting gross figures to net figures.
This formula shows the relationship between gross investment, net investment, and depreciation.
D) Gross investment minus depreciation. This option correctly defines Net Investment as the total investment made after deducting the value of capital goods that have depreciated or worn out during the period. It represents the true addition to the capital stock of an economy.
The question asks for the definition of depreciation in the context of national income accounting. We need to identify the option that correctly describes this economic concept.
Correct Option: A) An annual allowance for wear and tear of fixed capital
This option accurately defines depreciation (or Consumption of Fixed Capital) as understood in national income accounting. It represents the value of fixed capital that has been used up or worn out in the process of producing goods and services.
The problem asks to calculate the annual depreciation using the straight-line method. The straight-line method of depreciation allocates the cost of an asset evenly over its useful life. The formula for annual depreciation under this method is the cost of the asset divided by its useful life.
Annual Depreciation = (Cost of Asset - Salvage Value) / Useful Life
In this problem, the salvage value (residual value) is not given. When salvage value is not mentioned, it is usually assumed to be zero for calculation purposes unless specified otherwise.
So, the formula simplifies to:
\[ \text{Annual Depreciation} = \frac{\text{Cost of Asset}}{\text{Useful Life}} \]Correct Option: A) Rs 10,000
The question asks for the specific meaning of 'investment' in economics. It's important to distinguish between financial transactions and real economic activity when defining investment in an economic context.
C) Addition to the stock of physical capital (capital formation). This is the precise definition of investment in economics, referring to the creation of new productive assets that enhance the economy's capacity to produce goods and services.
The question asks for the term that describes the stock of unsold finished goods, semi-finished goods, or raw materials a firm holds from one year to the next. This is a fundamental concept in business and economics related to a firm's assets and operations.
A) Inventory is the correct term for the stock of unsold finished goods, semi-finished goods, or raw materials that a firm carries from one year to the next. It represents goods held for sale or for use in production.