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In economics, net domestic product (NDP) is a measure of a nation’s economic activity that is calculated by subtracting depreciation from gross domestic product (GDP). The net domestic product takes into account the capital consumed throughout the year; this depreciation is often referred to as a capital consumption allowance, which represents how much money would be needed to replace the assets that were used up. Some economists consider net domestic product a more accurate way of measuring the health of the economy than gross domestic product; therefore, it is typically used more often.
GDP is the value of services and finished goods that are produced within a country’s borders during a specific period of time – usually a year. GDP includes all government spending, public and private consumption, investment and exports, minus any imports. Gross domestic product is sometimes used to measure a country’s standard of living. It can be used as an indicator of a country’s economic health, although some economists maintain that GDP serves as a measure of a nation’s productivity rather than its material well-being.
Net domestic product is an estimate of how much money a country must spend to maintain its current gross domestic product. If a country is unable to replace the capital lost through depreciation, gross domestic product will fall. A large gap between gross domestic product and net domestic product can indicate the possible obsolescence of capital goods. Alternatively, a shrinking gap would likely mean that the condition of the country’s capital stock is improving.
Gross domestic income (GDI) is another statistic used by the Federal Reserve to measure a country’s economic activity. The GDI is based on all income earned during the production of goods and services within a country’s borders. It is different from gross domestic product, which is a measure of expenditure.
Gross national product (GNP) is the total value of domestic and foreign sources that a country’s residents claim. It is the value of goods and services produced within a country, plus the net income received by residents abroad. Economists use all these different factors to analyze a country’s output and income to get a pretty accurate picture of the state of that country’s economy.