Correct Answer: decline in the value of fixed assets

Solution : The correct answer is (b) decline in the value of fixed assets.

In national income accounting, depreciation refers to the decline in the value of fixed assets over time. Fixed assets, such as buildings, machinery, equipment, vehicles, and infrastructure, are used in the production process and are expected to gradually lose value due to factors such as wear and tear, obsolescence, or physical deterioration.

Depreciation is a measure of the reduction in the value of these fixed assets during a specific period. It reflects the economic cost associated with the wear and tear or aging of capital goods used in production. Depreciation is subtracted from the Gross Domestic Product (GDP) to obtain the Net Domestic Product (NDP), which accounts for the net value of goods and services produced after accounting for the depreciation of fixed assets.

Therefore, depreciation is an important concept in national income accounting as it allows for a more accurate assessment of the net value added by the economy, considering the reduction in value of the fixed assets used in the production process.