Question

What is consumption of fixed capital?

• A. Capital formation
• B. Depreciation
• C. Investment
• D. All of these

Hint:

"Consumption of fixed capital" is just the technical, formal term for what is commonly known as depreciation.

Answer 1

The Correct Option is B

"Consumption of fixed capital" is the official terminology used in national income accounting for depreciation. It represents the decline in the value of the fixed assets (like machinery, buildings, and equipment) of a firm or a country due to wear and tear, obsolescence, or accidental damage during the production process. Capital formation and investment refer to the addition of new capital goods to the existing stock, which is the opposite of consumption of fixed capital.