Glossary term
Double Counting: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Double counting is the error of including the value of the same output more than once when estimating national income. It happens when the value of intermediate goods is added to the value of the final goods that use them. National accounts avoid it by using value added or counting only final goods.
In more detail
In the example, value added is ₹20 by the farmer, ₹10 by the miller and ₹20 by the baker, which sum to the ₹50 final value. The same total comes whether we count only the final bread or add value added at all stages. Either way, the intermediate sales must not be added on top.
Example
A farmer sells wheat for ₹20 to a miller, who sells flour for ₹30 to a baker, who sells bread for ₹50. Adding all three gives ₹100, but the true contribution is ₹50.
Key points
- Counting every stage’s sales overstates GDP.
- Value added at each stage sums to the final value.
- Second-hand goods sales are not counted again.
Common mistake
Adding sales at every stage of production to find GDP.
Related terms
Where it is explained
This term is explained in Class 12 Macroeconomics Chapter 2: National Income Accounting.