# Economics - calculating GDP question!

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#1
Hey everyone, was wondering if someone could help me get my head around this as I've read through my textbook and watched countless youtube videos but am still a bit confused.

When it comes to counting GDP, I understand that with the product method we are faced with the problem of double counting. To avoid this we should only add the value of the final product, use the value added method and take account of stocks.

Are we still faced with the problem of double counting with the income and expenditure method?
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7 years ago
#2
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7 years ago
#3
(Original post by jesuisconfuse)
Hey everyone, was wondering if someone could help me get my head around this as I've read through my textbook and watched countless youtube videos but am still a bit confused.

When it comes to counting GDP, I understand that with the product method we are faced with the problem of double counting. To avoid this we should only add the value of the final product, use the value added method and take account of stocks.

Are we still faced with the problem of double counting with the income and expenditure method?
The problem of double counting only occurs when the product goes through different stages of production. For example, if a diamond is valued at £100 but a ring containing that diamond is valued at £150, then the ring maker has added £50 - which is the same as saying that the final value of the product sold is £150.

This problem should not occur for the income and expenditure approach. Income is measured as a final income (as nice as it would be to get paid for each part of our job separately - If i make cars, I don't get paid for making the seats and then get paid again when the complete car is sold)

The expenditure approach is also measured in final values for consumption, investment, government spending and net exports (exports - imports). This is not a problem because we pay for the final good that is sold (ie we do not pay for the diamond and then the diamond ring again!)

So no, this problem only occurs for the product method.

I really hope this helps!

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