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.
Frequently asked questions
What is the correct answer to this question?
It deducts depreciation of capital
Why is this the correct answer?
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.
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.
