Economics • Economic BasicsMedium
How does the concept of 'Net Domestic Product' differ fundamentally from 'Gross Domestic Product' within national income accounting frameworks?
A. Net Domestic Product includes net factor income from abroad whereas Gross Domestic Product excludes it.
B. Net Domestic Product accounts for depreciation of capital assets whereas Gross Domestic Product does not.✓ Correct Answer
C. Net Domestic Product is calculated at factor cost while Gross Domestic Product is evaluated strictly at market prices.
D. Net Domestic Product incorporates indirect taxes minus subsidies while Gross Domestic Product omits them.
💡 Solution & Explanation
Net Domestic Product subtracts the depreciation or consumption of fixed capital from Gross Domestic Product to reflect the actual net addition to the economy's capital stock. Alternative statements confuse domestic aggregates with national concepts or valuation methods. Capital depreciation represents the wear and tear of machinery and infrastructure over the production cycle.
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