Option 1 -> Investment is the flow of expenditure on capital goods, not the wear and tear adjustment.
Option 2 -> Capital refers to the stock of capital goods, not the reduction in their value.
Option 3 -> Depreciation represents the loss in value of capital goods due to wear and tear, obsolescence, and usage over time.
Option 4 -> Consumption goods are goods used by households for final consumption, unrelated to capital wear and tear.
Hence, Option 3: Depreciation -> Depreciation is the systematic allocation of the cost of capital goods over their useful life. When deducted from gross investment, it gives us net investment, which represents the actual addition to the capital stock. The formula is: Net Investment = Gross Investment - Depreciation. This adjustment is essential in national income accounting to accurately measure the real increase in productive capacity of an economy. -> correct