Question

Antima, an economist, was calculating a nation's GDP for 2020-21. She erroneously included the prices of intermediate and final goods in her calculation. Determine the economic impact of this situation.

• A. It will result in no changes.
• B. It will result in double counting.
• C. It will exaggerate the value of GDP.
• D. It will lessen the value of GDP.

Answer 1

Answer: (B), (C)

It will exaggerate the value of GDP.

Gross Domestic Product (GDP) represents the monetary value of all final goods and services produced within a country during a time period.

Only the monetary value of final goods and services will be taken into account when calculating the GDP. Taking the value of intermediate goods into account will result in double counting, resulting in an overvaluation of GDP.