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Chapter 19: Q. 14 (page 470)

Why must you avoid double counting when

measuring GDP?

Short Answer

Expert verified

Double counting should be avoided as the reported GDP can be more than the actual amount of production.

Step by step solution

01

Step 1. Introduction

When the cost of inputs utilized in the production of final goods and services is included in the calculation of GDP, the problem of double counting occurs. This is because the value of inputs utilized in the manufacturing of a product is included in the ultimate price of goods and services.

02

Step 2. Conclusion

If the price of inputs is taken into account while calculating GDP, the reported GDP will be higher than the actual quantity of production.

03

Step 3. Example

For example, the gross domestic product (GDP) is calculated based on the sale of a shirt in a store. However, it does not account for the cost of thread and cotton. This is due to the fact that all of those inputs are counted at the point of sale.

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Most popular questions from this chapter

What are the two main difficulties that arise in

comparing different countries' GDP?

According to Table 19.7, how long has the average expansion lasted since the end of World War II?

Country A has export sales of \(20billion, government purchases of \)1,000billion, business investment is \(50billion, imports are \)40billion, and consumption spending is $2,000billion. What is the dollar value of GDP?

Why do you think that GDP does not grow at a steady rate, but rather speeds up and slows down?

Using data from Table 19.5 how much of the nominal GDP growth from 1980 to 1990 was real GDP and how much was inflation?
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