Question

4. Why is value added an important measure of growth and development?

Answer 1

Value added equals to the value of output deducting the value of intermediate consumption. This is essentially the value of what the producer of a firm or in macro terms what the country produces and is thus equated to growth of the nation. It provides the dollar value of goods and services produced in a country after deducting the raw materials and intermediate goods used in the production.

In accounting the national income of the country,

Gross Value added=Gross Domestic Product + subsidies on products-taxes on products.

Importance of Value added as a measure:

1. It gives the supplier's side of economic activity rather than consumer's side which is given by GDP.

2. It is considered to be a better indicator of growth and development as it does not include taxes. GDP can be increased by increase in taxes and people might confuse it with increase in production in economy.

3. A sector wise breakdown of Gross value added indicates which sector of the economy needs help and which sector is booming.

Thus value added is a true measure of growth and development of the country.