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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

The Czech Republic has a GDP of 1,800 billion koruny. The exchange rate is 25 koruny/U.S. dollar. The Czech population is 20 million. What is the GDP per capita of the Czech Republic expressed in U.S. dollars?

Should people typically pay more attention to their

real income or their nominal income? If you choose the latter, why would that make sense in today鈥檚 world? Would your answer be the same for the 1970s?

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

Is it possible for GDP to rise while at the same time per capita GDP is falling? Is it possible for GDP to fall while per capita GDP is rising?

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