Question

How to Avoid Double Counting?

Answer 1

To avoid double counting, two methods are used:

(1) Final Output Method, and 

(2) Value Added Method.

(1) Final Output Method: According to this method, only final goods and services ( in terms of their end-use) are to be considered in the estimation of GDP. Intermediate goods are not be considered. We know (in terms of their end-use), final goods are those goods which have crossed the boundary line of production and which are ready for use by their finals users who may be be consumers or producers. 

When Consumers buy final goods, there is final consumption expenditure and when producers buy final goods, there is final consumption expenditure and when producers buy final goods, there is Investment Expenditure.

(2) Value Added Method: Value Added refers to the difference between Value of output and the Value of Intermediate Consumption of each producing unit in the Country.