Question

Explain any three precautions while calculating GDP by Value Added Method.​

Answer 1

ᴄᴏʀʀᴇᴄᴛ ǫᴜᴇsᴛɪᴏɴ :-

ᴇxᴘʟᴀɪɴ ᴀɴʏ ᴛʜʀᴇᴇ ᴘʀᴇᴄᴀᴜᴛɪᴏɴs ᴡʜɪʟᴇ ᴄᴀʟᴄᴜʟᴀᴛɪɴɢ ɢᴅᴘ ʙʏ ᴠᴀʟᴜᴇ ᴀᴅᴅᴇᴅ ᴍᴇᴛʜᴏᴅ

ᴄᴏʀʀᴇᴄᴛ ᴀɴsᴡᴇʀ :-

• ᴄᴏsᴛ ᴏғ ɪɴᴛᴇʀᴍᴇᴅɪᴀᴛᴇs ɢᴏᴏᴅ ᴄᴀɴ'ᴛ ʙᴇ ᴄᴏᴜɴᴛᴇᴅ ɪɴ ғɪɴᴀʟ ɢᴏᴏᴅs.
• sᴇᴄᴏɴᴅ ʜᴀɴᴅ ɢᴏᴏᴅs ᴀɴᴅ sᴇʀᴠɪᴄᴇs ᴀʀᴇ ɴᴏᴛ ᴀ sᴜʙᴊᴇᴄᴛ ᴛᴏ ʙᴇ ᴍᴀʀᴋᴇᴅ ᴡɪᴛʜ ᴍsᴘ.
• ᴠᴀʟᴜᴇ ᴀᴅᴅᴇᴅ ɢᴏᴏᴅs sʜᴏᴜʟᴅ ɪɴᴄʟᴜᴅᴇ ᴀʟʟ ᴛʜᴇ ᴘʀɪɴᴛᴇᴅ ᴄᴏsᴛ ɪɴᴄʟᴜᴅᴇᴅ ɪɴ ɪᴛ

ᴀɴsᴡᴇʀᴇᴅ ʙʏ :-

ᴘɪɴʟᴋ_ᴡɪɴᴇ⚡

Answer 2

ANSWER :

Three precautions to be taken while calculating GDP by value added method are explained below :-

• [i] Sale and purchase of second hand goods is not included : A firm may sale or purchase second hand goods. The value of such goods are included in the year in which those goods were produced. Therefore, while calculating Gross Domestic Product (GDP) under value added method the sale and purchase of second hand goods is not included because value of those goods are already included before and its values do not have affect at the current flow of goods and services.

• [ii] Intermediate goods are not to be included : Another precautions to be taken while calculating GDP under value added method is that intermediate goods are not to be included in the national income. The goods which are used either for resale or for further production in the same year is known as intermediate goods. The value of intermediate goods is merged with the value of final goods and hence it is not included in the GDP. If they are included again it will lead to double counting.

• [iii] Change in stock of goods will be included : Inclusion of change in stock of inventories is another precaution to be taken while calculating GDP. There may be change in the stock of goods. The net increase in the stock of goods is a part of capital formation which will be included in the national incomes. So, when Gross Domestic Product (GDP) is calculated under value added method, the change in stock of goods, i.e, the change in inventory will be included.