Several adjustments must be made to net domestic product at factor cost in order to calculate GDP. One of these adjustments is adding depreciation. What is depreciation and why must it be added?
What will be an ideal response?
Depreciation is the wear and tear of capital when it is used and when it becomes obsolete. GDP includes expenditure on investment and some investment is used to replace the capital stock that has depreciated. So, when calculating GDP using the income approach, depreciation must be included. But depreciation is not included in net domestic product at factor cost because that includes only payments made (as income) to the inputs that helped produce the products and no payment is made for the depreciation of capital. Hence depreciation must be added to net domestic product at factor cost in order to calculate GDP.
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In what situation would a macroeconomist find real gross domestic product most useful?
a. when reporting the figures for economic growth in the latest quarter b. when comparing economic growth during two different decades c. when measuring the change in the unemployment rate over the past decade d. when analyzing what factors affect changes in the price level over time
When the CPI increases from one year to the next:
A. the cost of living has decreased. B. people need to spend more money to buy the same amount of goods as the previous year. C. deflation has occurred. D. All of these statements are true.
By shifting aggregate demand, monetary policy can affect ________ and ________.
Fill in the blank(s) with the appropriate word(s).
Economies of scale involve
A. economies realized by producing several goods simultaneously. B. economies in marketing and transportation of many products. C. economies from being larger and have lower cost per unit. D. all of the above.