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Unformatted text preview: 5 = 2000). If the annual investment activity of the firm is $3000 then it can add to the stock as well. In this case $3000 is the gross investment . Out of this amount $2000 are required for depreciation purposes; the remainder $1000 is the firms net investment. We can conclude that the firms net investment or capital formation activity will be positive and its stock of capital will increase when its gross investment exceeds depreciation requirement. If gross investment falls short of the depreciation allowance then net investment will be negative. GI - D = NE 3000 - 2000 = 1000 Positive GI -D = NE 2000 - 2000 = 0 Nil GI -D = NE 1500 -2000 = - 500 Negative...
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- Fall '10