Depreciation (economics)

In economics, depreciation is the gradual decrease in the economic value of the capital stock of a firm, nation or other entity, either through physical depreciation, obsolescence or changes in the demand for the services of the capital in question. If the capital stock is ${\displaystyle K_{t}}$ in one period ${\displaystyle t}$, gross (total) investment spending on newly produced capital is ${\displaystyle I_{t}}$ and depreciation is ${\displaystyle D_{t}}$, the capital stock in the next period, ${\displaystyle K_{t+1}}$, is ${\displaystyle K_{t}+I_{t}-D_{t}}$. The net increment to the capital stock is the difference between gross investment and depreciation, and is called net investment.