ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Economists do not factor intermediate goods when they calculate gross domestic product (GDP). GDP is a measurement of the market value of all final goods and services produced in the economy. The reason why these goods are not part of the calculation is that they would be counted twice.

Detailed explanation-2: -Not all productive activity is included in GDP. For example, unpaid work (such as that performed in the home or by volunteers) and black-market activities are not included because they are difficult to measure and value accurately.

Detailed explanation-3: -If intermediate goods and services were included in GDP: the GDP would be overstated. the GDP would then have to be deflated for changes in the price level. nominal GDP would exceed real GDP.

Detailed explanation-4: -The major items included in the calculation of GDP include business investment, net exports, individual consumptions, and government expenditures. The GDP calculation does not transfer payments, purchases, and sales of used goods, intermediate goods, etc.

Detailed explanation-5: -The GNP excludes intermediate goods, second hand sales as well as financial transactions. The GNP is a money amount and must be adjusted for changes in the value of money.