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Two countries have equal NDP but the first country has higher depreciation. Which country will have higher GDP?

Answer and explanation

Correct answer: First country

The governing relationship is GDP = NDP + depreciation, because NDP is obtained after deducting consumption of fixed capital from GDP. Since both countries have the same NDP, the country with greater depreciation will have the greater GDP after it is added back. Therefore, the first country is correct. Equal NDP alone does not imply equal GDP when depreciation differs.

Related tags

NdpGdpDepreciationNational-IncomeMacroeconomicsGdp And WelfareNational Income And Related AggregatesEconomics

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