Define GDP ? How it is calculated ?

Asked by utkarsha1412 | 3rd Jul, 2017, 05:52: PM

Expert Answer:

  • Gross Domestic Product (GDP) is the market value of the final goods and services produced during a year within the domestic territory of a country.
  • Here only final goods and services are counted to avoid the problem of double counting.
    • For e.g. a farmer sold wheat to flour mill for Rs. 10 per kg. The mill grinds the wheat and sold the flour to a biscuit company for Rs. 12 per kg. The biscuit company uses the flour, sugar and butter to make 5 biscuit packets. He sold the biscuit to the consumer at Rs. 15 per biscuit packet.
    • Here biscuits are the final goods that are purchased by the consumer. Wheat and wheat flour are the intermediate goods used in the production of final good.
    • The value of Rs. 75 already includes the value of flour Rs. 12. 
    • Hence only the value of final goods and services. 

Therefore, GDP  = Value of output − Intermediate Consumption

Answered by Tharageswari S | 4th Jul, 2017, 08:26: AM

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