Homework Answers
Ans) Value added method of calculating GDP is used to avoid double calculation. Double calculation is counting price of good more than once.
In value added method, we add value added at each successive stage.
Value added by Bob = $6,000.
Value added by Jim = $12,000 - $6,000 = $6,000
Value added by Publix = $19,000 - $12,000 = $7,000
GDP = sum of values added at each stage
GDP = $6,000 + $6,000 + $7,000 = $19,000
Now, recall the definition of GDP. GDP is the final value of all goods and services produced in an economy.
We see that upon adding values at each successive stage, we get the value of final product and hence our definition is verified.
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