Giving reason, explain how should the following be treated in estimating gross domestic product at Market Price.
Giving reason, explain how should the following be treated in estimating gross domestic product at Market Price.
(i) Fees to a mechanic Paid by a firm.
(ii) Interest paid by an individual on a car loan taken from a bank.
(iii) Expenditure on purchasing a car for use by a firm.
1 Answers
(i) Fee to a mechanic paid by a firm is intermediate consumption expenditure of a firm. Since the inclusion of intermediate consumption expenditure leads to double counting, it will not be included in estimating GDP at market Price.
(ii) Interest paid by an individual on a car loan taken from the bank will not be included in estimating GDP at market price since the loan is used for consumption purpose and not for production purpose.
(iii) A car is a capital good for a firm, therefore, expenditure on purchasing a car for use by a firm will be a part of the gross domestic fixed capital formation and will be included in estimating GDP at market price by expenditure method.