GDP
- Factor Cost (Actual Cost) $20
- (Tax Part) $5
Market Price = $25
-
Factor cost is the true indicator.
- if we consider the market price then we consider taxes too…
- If the taxation increases, the GDP gets inflated, but does it really mean that the GDP has increased?
- No, thus factor cost is the true indicator of tax.
-
If we measure GDP at current prices then inflation can inflate GDP nominally, but in the real sense the GDP wouldn’t have gone up
- 1950 → 100 kg of rice x 5 price = 500
- 2025 → 100 kg of rice x 50 price = 5000 But the actual production didn’t increase. We should thus, not measure GDP at current prices but at constant prices.
So, we should calculate GDP at factor costs and at constant prices.
- to hide the fact that they didn’t perform too well, they mentioned that there is a problem in the “calculation method” for GDP
and introduced GVA, which is synonymous to GDP at FC.
tip if you measure any economic variable at current prices, it is inflated and it is not showing the true picture.