Several adjustments must be made to net domestic product at ...

[xroflmao]

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?

Question 2

A tariff is imposed on a good. This will ________ the domestic producer surplus, ________ the domestic consumer surplus, and ________ total surplus in the home country.
 
  A) increase; decrease; decrease
  B) increase; decrease; increase
  C) increase; remain unchanged; increase
  D) increase; increase; increase

[Kjones0604]

Answer to Question 1

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.

Answer to Question 2

A

[xroflmao]

Great answer, keep it coming

[mohan]

Wow, this really help