The consumption of fixed capital is also known as _________.

The correct answer is depreciation.

In economics and national income accounting, the term consumption of fixed capital (CFC) refers to the reduction in the value of the fixed assets owned and used by a producer as a result of physical deterioration, normal obsolescence, or accidental damage during the accounting period.

Let's understand this step-by-step:

Step 1: What are Fixed Assets?
Fixed assets (also called fixed capital) are long-term assets used in the production process — such as machinery, buildings, vehicles, and equipment. These assets are not consumed in a single production cycle; instead, they are used over multiple periods.

Step 2: What happens to Fixed Assets over time?
Over time, fixed assets lose their value due to:
- Wear and tear from regular use
- Obsolescence (becoming outdated due to newer technology)
- Accidental damage during production

This gradual loss in the value of fixed assets is called the consumption of fixed capital.

Step 3: The Common Name — Depreciation
In everyday economic and accounting language, the consumption of fixed capital is widely known as depreciation. It represents the amount by which the value of capital stock declines in a given time period due to its use in production.

Step 4: Why not the other options?
- Net Investment: This is Gross Investment minus Depreciation. It is the addition to the actual capital stock after accounting for depreciation — not depreciation itself.
- Appreciation: This is the opposite concept — it refers to an increase in the value of an asset over time, not a decrease.
- Gross Investment: This refers to the total addition to the capital stock in a period, including depreciation. It does not represent the consumption of fixed capital.

Key Relationship to Remember:

\text{Net Investment}=\text{Gross Investment}-\text{Depreciation (CFC)}

This formula confirms that depreciation (consumption of fixed capital) is a distinct concept that is subtracted from Gross Investment to arrive at Net Investment.

Conclusion: The consumption of fixed capital is simply another name for depreciation — the measure of how much value the fixed capital loses during the production process over a given accounting period.