Question

 4. One danger for the statisticians who calculate GDP is to avoid the mistake of double counting "double counting" and describe why it may be dangerous.

 5. When comparing the GDP of different countries, two issues immediately arise. What are these issues and how does one account for these while comparing the GDP for different countries?

 6. List and describe the components of Gross Domestic Product on the demand side. Be sure to account for the relative size of each component within the total GDP.

Answer 1

4) Double counting refers to counting or including transactions more than once. This is a danger for statisticians because it over estimates the gdp and shows the value of gdp more than the actual value. This usually occurs in value added method.

Eg: if cotton and the final product for which it is used are both included , then it is double counting.

5) The two issues which arise when GDP of two countries is being compared are

1)The currencies of both the countries are different. This is an important issue in gdp comparison. For comparison, it is essential to convert them to a single currency.

2) The population and living standards of two countries are different. Often it becomes difficult to compare a larger country with a smaller one. This could be solved by dividing gdp by population and finding per capita GDP.

6) Demand side of gdp includes consumption, government, investment and net exports. Consumption which is the consumption by the private citizens or households. It has the maximum share which is around 1/2 or 2/3rd of the total gdp. Investments are the purchase of capital or other such infrastructure projects. This is by businesses which helps increase the capital and overall productivity of nation.

The third component is government spendings which is the expenditure done by the government like bridges, roads etc.

Both these components are less in share than consumption and have almost equal share mostly depending on a number of factors like government policies etc.

The last factor is net exports which is exports less imports. It has the minimum share and usually defines how much the country is exporting and how much it is importing.