What is done with depreciation when moving from gross measures to net measures of national income?
Answer and explanation
Correct answer: It is deducted
Gross measures include the value of fixed capital used up during production. To obtain a net measure, this depreciation must be deducted because it represents the loss or consumption of existing capital, not a fresh addition to income or productive capacity. Thus, Net measure = Gross measure − Depreciation. Adding or ignoring depreciation would give an incorrect net figure.
Frequently asked questions
What is the correct answer to this question?
It is deducted
Why is this the correct answer?
Gross measures include the value of fixed capital used up during production. To obtain a net measure, this depreciation must be deducted because it represents the loss or consumption of existing capital, not a fresh addition to income or productive capacity. Thus, Net measure = Gross measure − Depreciation. Adding or ignoring depreciation would give an incorrect net figure.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates.
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