Double counting means counting the value of the same product more than once. In the calculation of the national income, the value of the final goods and services produced by all the production unit of a country during the year are counted. The value of intermediate goods is excluded. When we calculate the value of final goods, the value of intermediate goods is included. Every producer considerS his good as the final product irrespective of whether it will be used as an intermediate good or a final good.
For example, a company produces raw cotton and sells it for Rs 100 to another company. It converts it into cotton yarn and sells it to another company for Rs 200. The next company produces it into cotton clothes and sells it to Rs 300. The final firm sells it to the final consumers for use for Rs 400. So, if we add the total amount of 100+200+300+400, it will be Rs 1000. But this is the case of double counting as the value of the previous good is being counted twice. So, the actual value to be used for calculating national income is Rs 250.
The two approaches to correct the problem of double counting are:
a.Final output method: In this method, only the value of the final goods is included. Final goods are the goods which are ready for direct consumption or use. The value of the final output is calculated by subtracting the value of intermediate goods from the value of output.
B. Value-added method: The total sum of the value added by each producing unit of the country should be taken into consideration while calculating the national income. Value added is the difference between the value of output and the value of intermediate consumption.
“Gross Domestic Product (GDP) does not give us a clear indication of the economic welfare of a country’ The following points support this statement:
a. Gross Domestic Product is the total value of goods and services produced in the country for one year. Welfare means the sense of well being. It is affected by both economic and non economic factors.
b. There are many goods and services which contribute to economic welfare but are not used in the calculation of gross domestic product.
c. The distribution of gross domestic product also effective welfare.
D. It is not possible for all the products to contribute equally to economic welfare.
e. Some goods can even contribute negatively.
f. The GDP does not account externalities but they affect the Welfare...
Rate this question :