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Why may net domestic product sometimes provide a better indication of sustainable welfare than GDP?

Answer and explanation

Correct answer: It deducts depreciation of capital

Net domestic product is obtained by subtracting consumption of fixed capital, commonly called depreciation, from gross domestic product. Depreciation represents the part of current production needed to replace worn-out or used-up capital. By deducting it, NDP gives a closer indication of the income that can be maintained without reducing the productive capital base. It still does not fully account for pollution, distribution, or every aspect of welfare, so “better” does not mean perfect.

Related tags

NdpDepreciationSustainable IncomeGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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