Chapter 19, Problem 14RQ

### Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

Chapter
Section

### Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

# Why must you avoid double counting when measuring GDP?

To determine

The reasons to avoid double counting while calculating Gross Domestic Product (GDP).

Explanation

Generally, the problem of double counting arises due to inclusion of the value of intermediate goods in national income. It is because the value of intermediate goods is also hidden in the value of final goods. This can be illustrated with an example:

Suppose, person A runs a bakery. He gets flour worth of $100 from another person B to be used in making bread. Bread is the final product of A’s bakery. And, flour is person B’s final product. A sells one packet of bread for$ 200.

Now, in this case, assuming Bread and Flour to be the only two goods in the economy and A sells only one packet of bread, while B sells only $100 worth of flour in a particular year. Now, we calculate GDP without avoiding double counting. Calculation: Value of final good bread=$200

Value of final good flour = $100 Calculating GDP as the sum of the value of final goods, we get, GDP=$200+\$100&

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