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What is a Capital Consumption Allowance?

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What is a Capital Consumption Allowance?

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A capital consumption allowance is that portion of the gross domestic product of a nation that can be attributed to depreciation. In effect, the capital consumption allowance is a means of allowing for the fact that that there is a need for the replacement of resources in order to maintain a given level of productivity in the nation. The capital consumption allowance actually addresses two aspects of the capital of a given country. One aspect of the capital consumption allowance is the status of the physical capital of the country. Physical capital is sometimes referred to as ordinary capital, and involves the value of a wide range of physical assets, such as land, manufacturing plants, machinery, and other equipment used in the manufacturing process. Essentially, physical capital is any resource that is used in the production of goods and services, excluding humans and human labor. The second factor that helps to make up the capital consumption allowance is human capital. This aspect

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