Which of the following statements are correct?
(A) GDP is the sum total of the gross value added of all the firms in the economy.
(B) GDP is the sum total of the value of output of all the firms in the economy.
(C) Gross value added of a firm includes depreciation.
(D) Net value added of a firm = Gross value added − Depreciation.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C) and (D) only
GDP adds up the value added of all firms, not their whole output, so that intermediate goods are not counted twice.
(A) GDP is the sum total of the gross value added of all the firms in the economy. — True. GDP is the sum of the gross value added of all firms.
(B) GDP is the sum total of the value of output of all the firms in the economy. — False. Adding the whole output would count intermediate goods twice.
(C) Gross value added of a firm includes depreciation. — True. Value added that includes depreciation is gross value added.
(D) Net value added of a firm = Gross value added − Depreciation. — True. Net value added = GVA − depreciation.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … If we include depreciation in value added then the measure of value added that we obtain is called Gross Value Added. If we deduct the value of depreciation from gross value added we obtain Net Value Added. …” “2.2.1 The Product or Value Added Method … Net value added of the firm i ≡ GVAi – Depreciation of the firm i (Di) If we sum the gross value added of all the firms of the economy in a year, we get a measure of the value of aggregate amount of goods and services produced by the economy in a year (just as we had done in the wheat-bread example). Such an estimate is called Gross Domestic Product (GDP). Thus GDP ≡ Sum total of gross value added of all the firms in the economy. …” |