Why may net domestic product sometimes be a better indicator of sustainable welfare than GDP?
Answer and explanation
Correct answer: Because it deducts consumption of fixed capital
The gross-net distinction is central: net domestic product equals GDP minus consumption of fixed capital, commonly called depreciation. Depreciation represents the value of machinery, buildings and other fixed capital used up during production. By deducting this amount, NDP indicates the output remaining after maintaining the capital stock, so it can be more informative for sustainability than GDP. It does not, however, capture every environmental cost.
Frequently asked questions
What is the correct answer to this question?
Because it deducts consumption of fixed capital
Why is this the correct answer?
The gross-net distinction is central: net domestic product equals GDP minus consumption of fixed capital, commonly called depreciation. Depreciation represents the value of machinery, buildings and other fixed capital used up during production. By deducting this amount, NDP indicates the output remaining after maintaining the capital stock, so it can be more informative for sustainability than GDP. It does not, however, capture every environmental cost.
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.
