Question

What is double counting?How can it be avoided?

Answer 1

Counting of value of same products more than once... It is solved by value added method

Answer 2

• Double counting is the problem which occurred while calculating national income.
• Whenever double accounting has occurred while calculating national income, the national income estimates will lead to confusion. It has mainly occurred while calculating the final product and intermediate product. Intermediate goods are components of the final product.
• There is always the possibility of including a good or service more than once where only final goods are are to be included while translating national income estimates. This leads to the problem of double counting which leads to the overestimation of national income.
• It can be avoided by adding the value added. This double counting process can be efficiently avoided by calculating the national income by the value-added method.
• In this method addition on the value of the commodity is only considered. It adds the value for the commodity in each stage of production.
• Hence there is only addition of the value added the problem of double counting can be efficiently avoided in the value-added method.

• The circular flow is the continual circular moment of a money and goods economy. In the two-sector model, the two sectors are the household sector and the business sector.
• The household sector, which is assumed to own the factors of production, supplies factor services and consumes the output produced by the firm sector.
• The firm sector employees the factor of production and produces the final output for sale. The economic activities carried out in the business sector and household sector results in two types of the transaction between the firms and consumers.

From the viewpoint of producers the transaction that takes place in the form of:

1. Purchase of the services a factor of production from the household sector.
2. Sale of output to the household sector.

From the viewpoint of consumers, the transaction takes place in the form of:

1. Sale of factor services to the business sector.
2. Purchase of final output from the business sector.

• In the circular flow chart, the firms provide wages, rent and dividend for the transfer of factors of production from the household sector to the firm sector.
• And the household individuals consume the output produced by the firms from the wages.
• By the consumption of individuals, the firms get consumption expenditure by the individuals.

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