What precautions should be taken in the calculation of GDP
Answers
The following precautions are to be taken while using expenditure method:
(i) Only final expenditure is to be taken into account to avoid error of double counting.
(ii) Expenditure on second hand goods is not to be included.
(iii) Expenditure on shares and bonds is not to be included.
(iv) Expenditure on transfer payments (called transfer expenditure) is not to be included.
(v) Expenditure on self-use of own produced goods (like the farmer using his production of wheat or the house owner using his own house) should be included.
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When estimating Gross Domestic Product, the following precautions should be taken:
The standard measure of the value-added created via the production of goods and services in a country during a certain period is the gross domestic product (GDP). Some precautions during calculations are:
1. Avoid double counting of production by only counting the value added by each unit of production.
2. Inclusion of output produced for self-consumption.
3. Second-hand goods should not be included in the sale or purchase.
4. Ensure that the value of intermediate consumption is not included.
5. The value of sales-related services must be included.