Gross Domestic Product

GrossDomestic Product

Discusswhat is, and what is not, included in calculating GDP.

Ineconomics, (GDP) is the measure of economicactivities in a given year. It consists of the total value of finalproducts produced and sold within the borders of a given countrywithin the current year (McEachern,2012).In other words, s measure two things: the totalincome and the total expenditure of goods and services in an economy.GDP is a significant economic indicator since it measures income thataffects people’s economic lives. Nevertheless, GDP does notconsider many things. Below are some of the factors.

Intermediategoods – these are goods used as ingredient inputs to come up withother goods, and later sold to consumers. For instance, the price offlour used in making bread is not considered. This is because itscost is included in the cost of the bread. Counting it again meansdouble counting the cost of the bread. GDP only counts the value ofthe final product rather than the costs of intermediate inputs.

Salesof used items – GDP consider the current production only. Forexample, the sale of a used car is not considered because nothing newis produced. Hence, such sales are not part of GDP.

Unpaidwork – GDP measures the markets values only. It does not considerthe value of unpaid goods and services. For instance, it does notconsider the work done by a family member who prepares family’smeal or take care of the children.

Goodsproduced outside the country – a country only considers goods andservices produced within its borders in the GDP. For instance, if acompany is American-owned, goods produced in another country does notcount as part of GDP in US.

References

McEachern,W. A. (2012). ECON Macro 3 (3rd ed.). Mason, OH: South-Western.&nbsp