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DEREGULATION: The reduction of government regulation of business, consumers, and market activity. The most noted period of deregulation occured during the 1970s and 1980s in response to criticisms that economic regulation inhibited rather than promoted competition. Key industries deregulated during this period were transportation, communications, and banking industries. Social regulations were also relaxed.
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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, 2000-2023. [Accessed: December 1, 2023].
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Today, you are likely to spend a great deal of time at an auction trying to buy either a solid oak entertainment center or a remote controlled ceiling fan. Be on the lookout for letters from the Internal Revenue Service.
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"Sometimes our light goes out, but is blown into flame by another human being. Each of us owes deepest thanks to those who have rekindled this light. " -- Albert Schweitzer, missionary physician
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MPI
Marginal Propensity to Invest
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