Homework SourseNet domestic product NDP typically only accounts for depreci
Net domestic product (NDP) typically only accounts for depreciation of physical capital. However, there are three broad types of capital: physical, human, and natural. Should depreciation of the other two types of capital also be counted? Explain, providing examples as appropriate.
Solution
Human Capital:-
The Depreciation of Human Capital should not be counted in calculation of NDP. It is difficult to quantify.
Natural capital:-
Depreciation of Natural capital should be counted in NDP calculation. When a non-renewable natural resources are depleted with the use of such resource and passage of time, unless the proceeds from sale of those resources are reinvested in other category of capital (Physical or Human), there is a net loss (i.e., depreciation) of capital. Even though the output is produced, the productive capability of the economy has decreased.
