Google
Friday 
July 20, 2018 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
IBT: The abbreviation for indirect business taxes, which is the official entry in the National Income and Product Accounts maintained by the Bureau of Economic Analysis for sales taxes. Indirect business taxes are one key difference between national income (the resource cost of production) and gross/net domestic product (the market value of production). For further discussion of this point, see gross domestic product and national income or net domestic product and national income. Indirect business taxes is generally less than 10% of gross domestic product (7-8% is common).

Visit the GLOSS*arama


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 Depreciation

Capital 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 Depreciation

A 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.

<= CAPITAL CONSUMPTION ADJUSTMENTCAPITAL STOCK, AGGREGATE SUPPLY DETERMINANT =>


Recommended Citation:

CAPITAL DEPRECIATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: July 20, 2018].


Check Out These Related Terms...

     | capital consumption adjustment | net national product | national income | personal income | disposable income | gross national product | real gross domestic product |


Or For A Little Background...

     | net domestic product | gross domestic product | production | gross private domestic investment | net private domestic investment | capital | investment | investment expenditures | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | macroeconomic problems | macroeconomic theories | macroeconomic sectors | circular flow | business cycles | stabilization policies | gross domestic product, ins and outs | gross domestic product, welfare | gross domestic product, expenditures | gross domestic product, income | net foreign factor income | capital stock, aggregate supply determinant |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis |


Search Again?

Back to the WEB*pedia


APLS

ORANGE REBELOON
[What's This?]

Today, you are likely to spend a great deal of time flipping through the yellow pages seeking to buy either looseleaf notebook paper or a three-hole paper punch. Be on the lookout for attractive cable television service repair people.
Your Complete Scope

This isn't me! What am I?

Only 1% of the U.S. population paid income taxes when the income tax was established in 1914.
"There is no point at which you can say, „Well, I'm successful now. I might as well take a nap.¾"

-- Carrie Fisher, actress, writer

BCD
Business Cycle Development
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2018 AmosWEB*LLC
Send comments or questions to: WebMaster