Why is it necessary to consider depreciation in national income?
Answer and explanation
Correct answer: Because it shows wear and tear of capital
Machines and buildings lose some value or productive service over time. Depreciation records this consumption of fixed capital. Including it prevents investment used merely to replace worn-out assets from being mistaken for a new addition to productive capacity. Without depreciation, net capital formation and related national-income measures would be overstated.
Frequently asked questions
What is the correct answer to this question?
Because it shows wear and tear of capital
Why is this the correct answer?
Machines and buildings lose some value or productive service over time. Depreciation records this consumption of fixed capital. Including it prevents investment used merely to replace worn-out assets from being mistaken for a new addition to productive capacity. Without depreciation, net capital formation and related national-income measures would be overstated.
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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