Option 1 -> Gross investment includes both new capital formation and replacement of depreciated capital, so it overstates the actual addition.
Option 2 -> Net investment is gross investment minus depreciation, representing the actual new addition to capital stock.
Option 3 -> Depreciation measures the reduction in capital stock value due to wear and tear, not addition.
Option 4 -> Inventory investment relates to changes in stock of goods, not capital stock addition.
Hence, Net investment -> Net investment = Gross investment - Depreciation. It represents the true net addition to the economy's capital stock after accounting for the wear and tear of existing capital. For example, if an economy invests 100 billion in new machinery (gross investment) but \30 billion worth of old machinery depreciates, the net addition to capital stock is only $70 billion (net investment). This is why net investment is the accurate measure of actual capital stock growth.-> correct