CA Foundation · Business Economics · Determination of National Income
A steel manufacturer sells steel worth ₹50 crore to an automobile company. The automobile company uses all of it to make cars and sells the cars for ₹120 crore. Under the value added method, what is the total contribution of these two firms to GDP, assuming the steel manufacturer bought no inputs?
The total contribution to GDP is ₹120 crore. Steel adds ₹50 crore and the automobile company adds ₹120 crore minus ₹50 crore, which is ₹70 crore. The sum equals the value of the final cars. Adding both sales values would wrongly count the steel twice.
- A₹120 croreCorrect
- B₹170 crore
- C₹70 crore
- D₹50 crore
Explanation
Steel firm's value added = 50 − 0 = ₹50 crore. Automobile firm's value added = 120 − 50 = ₹70 crore. Total = 50 + 70 = ₹120 crore, which equals the value of the final good. Adding both sales (₹170 crore) double counts the steel.
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