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HEDGE FUND: A mutual fund that relies heavily on hedging practices to protect the value of the financial assets. Such a fund specializes in options, futures, and other financial instruments that provide insurance protection against price fluctuations, and thus limits the risk of loss.
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                           CAPITAL CONSUMPTION ADJUSTMENT: The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis that measures the macroeconomy's capital depreciation during a given time period, usually one year. The capital consumption adjustment (CCA), which is also commonly termed the capital consumption allowance (also conveniently abbreviated CCA), is subtracted from gross domestic product (GDP) to calculate net domestic product (NDP). The CCA is also subtracted from gross private domestic investment to calculate net private domestic investment. The capital consumption adjustment is used to adjust gross domestic product for the wear and tear of capital during the course of production. The result of this adjustment is net domestic product. The capital consumption adjustment is also the difference between gross private domestic investment, the total amount of investment expenditures for capital goods, and net private domestic investment.Capital Wear and TearThe purpose of the capital consumption adjustment is to adjust gross investment expenditures and gross domestic product for depreciation of the capital stock. The reason for this adjustment is that the production of goods and services causes wear and tear on capital. Machines break down. Equipment becomes technologically obsolete. And the constant grind of productive activity causes almost all types of capital to just, plain wear out.Three primary reasons exist for capital depreciation: - One, capital simply wears out during the normal course of production.
- Two, capital also breaks down or is destroyed due to accidents, natural disasters, etc.
- Three, capital becomes obsolete due to technological improvements.
Replacing Old with NewWhatever the cause of the depreciation, a portion of the economy's productive resources is devoted to replacing this depreciated capital. However, resources used for producing replacement capital cannot be used to produce new capital or wants-and-needs-satisfying consumption goods. As such, deducting the capital consumption adjustment from gross domestic product provides an indicator (net domestic product) of the production that moves the economy forward. Using similar reasoning, deducting the capital consumption adjustment from gross private domestic investment provides an indicator (net private domestic investment) of the net increase in the capital stock.The capital consumption adjustment is usually around 10 percent of gross domestic product. In modern times, it has been as little as 8 percent and as much as 12 percent of GDP. A $10 trillion GDP is likely to see a CCA in the neighborhood of $1 trillion. While the purpose of the capital consumption adjustment is to measure the physical wear and tear or technological obsolescence of the capital stock, it is essentially an accounting estimate that depends on standard, legally-established accounting practices. In other words the CCA is NOT necessarily based on an actual physical evaluation of capital equipment. Gross and Net ProductionThe relation between gross domestic product (GDP), net domestic product (NDP), and the capital consumption adjustment (CCA) is commonly illustrated by the following equation:Gross and Net InvestmentThe relation between gross private domestic investment (GPDI), net private domestic investment (NPDI), and CCA is illustrated by this equation:
Recommended Citation:CAPITAL CONSUMPTION ADJUSTMENT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: January 21, 2019].
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Post WWI induced hyperinflation in German in the early 1900s raised prices by 726 million times from 1918 to 1923.
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"The more you praise and celebrate your life, the more there is in life to celebrate." -- Oprah Winfrey
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M1
currency and coins held by the nonbank public plus checkable deposits issued by traditional banks, savings and loan associations, credit unions, and mutual savings banks
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