Question

1. If Net Investment = 0 in a given year, this indicates that we have neither lost nor gained capital. That seems to be a desirable outcome. Do you agree?
2. Nominal GDP rose by more than $1 trillion between 2015 and 2016. We can therefore be sure that the economy expanded. Critically evaluate.

PLZ GIVE ORIGINAL ANSWER , THANK YOU

Answer 1

a.Net investment= Gross Investment- Depreciation.When net investment= 0, it means, all the investment done was used up to avoid shrinking of capital, but there is not any increase in capital.While this result is decent sometimes as income remains the same due to a constant capital base, 0 net investment over a prolonged period is not desirable, as every business and every economy needs growth in income in real terms, for which it is important to increase production, and also in most of the economies, prices keep rising over the years due to inflation, so if the income remains the same over the years, the purchasing power will fall, which is problematic.

b.Nominal gdp of an economy can increase due to the following reasons

1.increase in the quantity of goods and services produced which raises the nominal gdp.

2.Increase in prices of goods and services produced, which again raises the nominal gdp

3.Both the above reasons happening together.

So, in case of a rise in nominal gdp by $1trillion, we cannot say with 100% confidence that the economy has expanded, the whole of the increase might have been due to inflation- in this case the economy did not expand really.If the increase was partly due to both increase in price and increase in quantity of production or solely due to increase in production of goods and services, then we could say the economy has expanded.