The net domestic product is defined as the net value of all the goods and services produced within a country’s geographic borders. It is considered a key indicator of economic growth of a country.
The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP).
The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. The depreciation is also referred to as capital consumption allowance.
If the country is unable to replace the capital stocks that are lost through depreciation, it experiences a fall in the GDP of the country.
If the gap between the GDP and NDP is narrower or smaller, then it is considered good for an economy. Also, it indicates economic balance. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence.
Such an increase along with deterioration of the capital stock value indicates economic stagnation.
The formula for NDP can be expressed as follows:
NDP = GDP – Depreciation
Where,
NDP = Net domestic product
GDP = Gross domestic product
Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more
As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation.
This concept is about NDP or net domestic product that serves as an important factor for determining the economic health of a country. To read more about such interesting concepts on economics for commerce, stay tuned to our website.
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