Net Domestic Product
What is Net Domestic Product?
Net Domestic Product (NDP) is a measure of a nation’s production, or the size of its economy, that is adjusted for depreciation.
How is Net Domestic Product calculated?
Net Domestic Product = Gross Domestic Product (GDP) - Depreciation
Gross Domestic Product (GDP) is the total dollar value of all goods and service produced in anation over a specific time period. GDP is often thought of as the size of an economy.
Broadly, depreciation is the loss in value of an asset due to obsolecence, use, decay or other factors. In the above equation, the depreciation is sometimes referred to as the “capital consumption allowance” because it represents the amount of money needed to replace the capital that was consumed in the period.
Why is Net Domestic Product important?
A widening gap between GDP and NDP indicates that the capital stock of a country is not being replaced. In the long-run, such a gap will cause GDP to fall because production depends on a nation’s capital stock.