Net domestic product

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The net domestic product (NDP) equals the gross domestic product (GDP) minus depreciation on a country's capital goods.[1]

Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as "capital consumption allowance" and represents the amount of capital that would be needed to replace those depreciated assets.

If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. In addition, a growing gap between GDP and NDP indicates increasing obsolescence of capital goods, while a narrowing gap means that the condition of capital stock in the country is improving. It reduces the value of capital that is why it is separated from GDP to get NDP.

See also

References

  1. ^ Dornbusch, Rudiger; Fischer, Stanley; Startz, Richard (2004). Macroeconomics. New York: McGraw-Hill Irwin. pp. 22–23. ISBN 0-07-282340-2. 


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