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.
Frequently asked questions
What is the correct answer to this question?
First country
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
