How Can Double Counting Be Avoided in Calculating GDP?
According to the BusinessDictionary website, double counting occurs when the costs of intermediate goods that are used for producing a final product are included in the GDP count. To avoid double counting, these intermediate goods costs are ignored, with the GDP total including only the final price of the goods.
The GDP of a nation is the full value of all goods and services produced by a nation during a fiscal year. This production number does not include any income earned abroad by companies based in the nation. Current market prices are used to determine GDP. The final price of a good or service already includes the intermediate costs involved in producing that good or service. Intermediate costs can include anything from raw materials to labor in the production costs. GDP numbers are published quarterly. GDP is used as a way to measure the productive capacity of a nation and can be modified for better accuracy by adjusting the numbers to reflect the effects of inflation on the total amount from year to year. Another modifier to the GDP involves the addition of subsidies and subtraction of indirect taxes from the market prices of goods and services to present the GDP at factor cost.