Question

“Gross Domestic Product (GDP) and sum of Gross Value Added (GVA) in an economy are always equal.” Justify the given statement with valid arguments.

Hint:

GVA measures sectoral output, while GDP includes taxes and subsidies to reflect the economy's total market value.

Answer 1

Gross Domestic Product (GDP) measures the total monetary value of all final goods and services produced within a country during a given period. Gross Value Added (GVA) refers to the value of output minus the value of intermediate consumption across all economic sectors. Justification: \[ GDP = \sum GVA + \text{Net Indirect Taxes} \] - If Net Indirect Taxes (Taxes - Subsidies) = 0, then GDP and sum of GVA are equal.
- GDP represents the total economy, while GVA measures the contribution of different sectors. Conclusion: GDP and sum of GVA are equal only if Net Indirect Taxes are zero; otherwise, they differ by the tax component.