Economics · National Income Accounting
A developed nation is experiencing high capital consumption due to aging machinery requiring frequent repairs. While its Gross Domestic Product (GDP) is growing at 4 percent, its Net Domestic Product (NDP) is growing at only 1 percent. How is this discrepancy interpreted regarding productive capacity?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Depreciation is purely an accounting entry and has no impact on physical wealth.
- 2GDP is a better indicator of welfare than NDP, so the 4 percent growth is all that matters.
- 3The high gap indicates that a large portion of investment is merely replacing old assets rather than adding new productive capacity.✓
- 4The country is becoming more efficient because it is spending more on capital maintenance.
Correct answer
The high gap indicates that a large portion of investment is merely replacing old assets rather than adding new productive capacity.
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