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SMALL BUSINESS: The businesses in our economy that individually produce very little output, have little or no market control, but collectively produce about half of our total production. Most small business owners may aspire to the ranks of the second estate, but they're card-carrying members of the third.
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                           CAPITAL DEPRECIATION: The wearing out, breaking down, or technological obsolescence of physical capital that results from use in the production of goods and services. To paraphrase an old saying, "You can't make a car without breaking a few socket wrenches." In other words, when capital is used over and over again to produce goods and services, it wears down from such use. Depreciation is formally entered into the National Income and Product Accounts under the term capital consumption adjustment, (also occasionally termed capital consumption allowance). The capital consumption adjustment (CCA) is subtracted from gross domestic product (GDP) to derive net domestic product (NDP). It is also subtracted from gross private domestic investment (GPDI) to derive net private domestic investment (NPDI).The reasoning behind both adjustments is much the same. A portion of capital investment each year is used to replace depreciated capital. Deducting depreciation from either the total production of all goods (GDP) or just the production of capital goods (GPDI), leaves the "net" addition to production that can be used to move the economy forward. Three Sources of DepreciationCapital depreciation can occur for three reasons:- First, capital simply wears out through use. As the wheels of industry roll on, metal grinds against metal, wood becomes weathered, and the forces of nature take their toll. The tread on a delivery truck tires wears down. The cutting edge of a carpenter's saw wears off. The hard drive in an accountant's computer wears out. The fact of life is that capital wears out. It happens.
- Second, capital breaks down through constant use, accidents, or natural disasters. Today the capital works fine, tomorrow it does not. A carpenter's saw breaks when it encounters an undetected nail in a two-by-four. The tire of an delivery truck blows out when the tread is thin and the pavement is rough. An accountant's computer malfunctions after being tossed from a thirty-seventh-floor window (something about an undecipherable change in the IRS tax code).
- Third, capital becomes less productive through technological obsolescence. As technology marches forward, capital becomes less valuable and less productive even though it is in perfect physical condition. An accountant's computer might function flawlessly, but it lacks the memory and speed to run the latest software. A delivery truck works okay, but it just is not as big enough or as fast enough to make the needed deliveries. A carpenter's saw still works, but the newer ones with tungsten steel blades cut the wood even better. In some cases, technology advances make it more expensive to operate old capital than to purchase new capital.
Currency DepreciationA related use of the term depreciation applies to currency. This tends to pop up regularly in the analysis of international finance and foreign exchange markets. Currency depreciation means that the value of one currency, in terms of the ability to purchase goods and services, declines. In comparison, capital depreciation means the value of capital, in terms of the ability to produce goods and services, declines. In both cases, depreciation means the item (currency or capital) is less valuable.
 Recommended Citation:CAPITAL DEPRECIATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: June 17, 2025]. Check Out These Related Terms... | | | | | | | | Or For A Little Background... | | | | | | | | | | | | And For Further Study... | | | | | | | | | | | | | Related Websites (Will Open in New Window)... | |
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GREEN LOGIGUIN [What's This?]
Today, you are likely to spend a great deal of time searching the newspaper want ads hoping to buy either a printer that works with your stockpile of ink cartridges or income tax software. Be on the lookout for bottles of barbeque sauce that act TOO innocent. Your Complete Scope
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Ragnar Frisch and Jan Tinbergen were the 1st Nobel Prize winners in Economics in 1969.
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"The secret of getting ahead is getting started. The secret of getting started is breaking your complex, overwhelming tasks into small manageable tasks, and then starting on the first one. " -- Mark Twain, writer
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