Which of the following statements is true?
2023
Which of the following statements is true?
Answer: A. NNP = GNP – Depreciation — ConceptGross measures include depreciation, also called consumption of fixed capital. Net measures exclude this capital consumption. Therefore, moving from a…
- A.
NNP = GNP – Depreciation
- B.
NNP = GNP + Depreciation
- C.
GNP = NNP – Depreciation
- D.
More than one of the above
- E.
None of the above
Attempted by 1 students.
Show answer & explanation
Correct answer: A
Concept
Gross measures include depreciation, also called consumption of fixed capital. Net measures exclude this capital consumption.
Therefore, moving from a gross national measure to its net counterpart requires subtracting depreciation.
Application
Let GNP be 100 units and depreciation be 10 units.
Subtract capital consumption: NNP = 100 − 10 = 90 units.
Thus the accounting identity is NNP = GNP − Depreciation.
Contrast
NNP = GNP + Depreciation adds capital consumption instead of removing it.
GNP = NNP − Depreciation reverses the gross-to-net adjustment; rearranging the identity gives GNP = NNP + Depreciation.
Only one displayed accounting relation follows from the gross-to-net adjustment, so the set-level alternatives do not apply.
Relationship | Implication |
|---|---|
NNP = GNP − Depreciation | The net measure excludes capital consumption. |
NNP = GNP + Depreciation | The net measure would exceed the gross measure by depreciation. |
GNP = NNP − Depreciation | The gross measure would fall below the net measure by depreciation. |
Cross-check
Adding depreciation back to NNP gives 90 + 10 = 100, which recovers GNP.
Result: NNP = GNP − Depreciation.