Which of the following equation is appropriate for determining the Net Domestic Product (NDP)?
Answer Details
The appropriate equation for determining the Net Domestic Product (NDP) is NDP = GDP - depreciation.
Gross Domestic Product (GDP) is the total value of goods and services produced within a country's borders in a given period. However, this value includes the depreciation of capital goods, which refers to the decrease in value of assets due to wear and tear or obsolescence. To calculate the value of goods and services produced without the effect of depreciation, we need to subtract it from GDP. This gives us the Net Domestic Product (NDP), which is the value of goods and services produced within a country's borders minus the value of depreciation.
The other equations presented are not appropriate for determining NDP:
- NDP = GNP - depreciation refers to Gross National Product (GNP), which includes the income earned by a country's citizens abroad. It does not relate directly to the calculation of NDP.
- NDP = GDP + Net Income from abroad refers to Gross National Income (GNI), which is GDP plus net income from abroad. This equation does not account for depreciation, and does not provide a direct calculation of NDP.
- NDP = GDP * Net Income from abroad is not a recognized equation for calculating NDP, and does not account for depreciation.