Discuss what is, and what is not, included in calculating GDP?
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Gross domestic product (GDP) is a measure of economic activity in an economy in a given year. It consists of the market value of all final goods and services produced in the territory of a given country in a given year. There are many things that GDP does not count. Let us look at some of them.
- Sales of used items. GDP is a measure of current production. When you sell a used car, nothing new is produced. Therefore, these are not counted.
- Intermediate goods. These are goods that go into other goods which are then sold to consumers. For example, if a bakery buys flour to make bread, the flour is not counted. Its cost is part of the cost of the bread. If it were counted, we would be overstating the value of the things we produce.
- Unpaid work. GDP only counts market values. It does not count the value of things that are not paid for. An example of this would be the work done by a person who cooks their family’s meals or who cares for their family’s children.
- Goods produced outside the country. Even if a company is American-owned, the things that it produces in other countries (like Nike shoes made in Vietnam) are not counted as part of the GDP of the US.
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