Gross and Net Investment

The difference between gross investment and net investment is explained in this short revision video.

Gross Investment

Gross investment is the total amount that the economy spends on new capital. This figure includes an estimate for the value of capital depreciation since some investment is needed each year just to replace technologically obsolete or worn-out plant and machinery.

Net Investment

Net investment = gross investment – capital depreciation.

If gross investment is higher than depreciation, then net investment will be positive. This means that businesses will have a higher productive capacity and can meet rising demand in the future.