CSEET · Economic and Business Environment · National Income Accounting and Related Concepts
A steel company in India sells steel worth ₹500 crore to an automobile maker, which uses it to produce cars sold to consumers for ₹900 crore. While calculating GDP by the product method, what value should be counted for these two firms together?
Only ₹900 crore should be counted, being the value of the final good, cars. Steel worth ₹500 crore is an intermediate good already embedded in the car price, so adding it would cause double counting.
- A₹1,400 crore
- B₹900 croreCorrect
- C₹500 crore
- D₹400 crore
Explanation
Steel is an intermediate good used up in making cars, so its value is already included in the final price of cars. Only the final goods value of ₹900 crore is counted. Adding ₹500 crore would double count, giving ₹1,400 crore, which is wrong.
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