How to Calculate Net Domestic Product
Net domestic product equals GDP minus depreciation, the value of the capital used up while producing this year's output.
The Net Domestic Product formula
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Enter GDP, depreciation and gross investment to get NDP and whether the capital stock is growing or shrinking.
Market value of all final goods and services produced this year.
Consumption of fixed capital: the machines and buildings worn out this year.
All investment spending before depreciation is taken out.
After replacing the capital used up this year, $18,600 billion of output is left to raise consumption or expand the capital stock.
- Net investment
- $500
- Capital stock verdict
- Capital stock growing
- Depreciation as a share of GDP
- 15.5%
Gross investment exceeds depreciation by $500 billion.
Positive net investment expands future productive capacity; negative net investment erodes it.
The slice of this year's output that only replaces worn-out capital.
How to calculate Net Domestic Product, step by step
- 1Start with GDP. The market value of all final goods and services produced inside the country this year.
- 2Find depreciation. Also called consumption of fixed capital, this is the value of machines, buildings, and equipment worn out during the year.
- 3Subtract. NDP = GDP − depreciation, which leaves the output that does more than replace worn-out capital.
- 4Check net investment. Gross investment − depreciation shows whether the capital stock grew, held steady, or shrank.
Worked example: Net Domestic Product
If GDP is $22,000 billion and depreciation is $3,400 billion, then NDP = 22,000 − 3,400 = $18,600 billion. If gross investment was $3,900 billion that year, net investment = 3,900 − 3,400 = $500 billion, so the capital stock grew.
Net Domestic Product questions
Why subtract depreciation from GDP?
Part of this year's output only replaces capital that wore out. NDP shows how much is left over to expand the capital stock or raise consumption.
What happens if depreciation exceeds gross investment?
Net investment is negative and the capital stock shrinks, which lowers the economy's future productive capacity.
Is NDP the same as national income?
No, NDP is output measured net of depreciation, while national income sums the wages, rent, interest, and profit earned by resource owners.
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