How is the GDP of a country calculated? Explain how double counting can be avoided in such calculations.
Answers
Answered by
1
t's complicated, I'll try my best to make it simple. Below is the simple version.
GDP = gross domestic production, there are three ways to calculate it depending on what kind of data you rely on.
1.Expenditure-Based GDP
2.Income-Based GDP
3.Production-Based GDP
You use one way at a time, the reason to make a choice hings on what kind of data is more accessible for you. For U.S.A, it's Income-Based GDP, while for China it's Production-Based GDP.
To your question, government spending is more of a income rather than expenditure if it's paid to labor rather than production, thus that number will be counted in Income-Based GDP(as public servant's income). When the public servant uses the money to buy some consumer products, that goes into Expenditure-Based GDP. See, no double-counting here.
More over, there are rules as complex as accounting standards called System of National Account(SNA), telling you how to make a GDP accounting. For daily life, all we need to know is, the bigger, the better.
GDP = gross domestic production, there are three ways to calculate it depending on what kind of data you rely on.
1.Expenditure-Based GDP
2.Income-Based GDP
3.Production-Based GDP
You use one way at a time, the reason to make a choice hings on what kind of data is more accessible for you. For U.S.A, it's Income-Based GDP, while for China it's Production-Based GDP.
To your question, government spending is more of a income rather than expenditure if it's paid to labor rather than production, thus that number will be counted in Income-Based GDP(as public servant's income). When the public servant uses the money to buy some consumer products, that goes into Expenditure-Based GDP. See, no double-counting here.
More over, there are rules as complex as accounting standards called System of National Account(SNA), telling you how to make a GDP accounting. For daily life, all we need to know is, the bigger, the better.
Similar questions