Answer to Question #286837 in Macroeconomics for Zee

Question

Why is depreciation included in calculating net national income? Why there has to be capital consumption in calculating income generation

Answer 1

Depreciation is deducted from GDP. It is also called the Capital Consumption Allowance and defined as the portion of the gross domestic product which is due to depreciation. It measures the amount of expenditure that a country has to undertake to maintain its productivity and hence key factor to consider in the calculation of national income.