Reference no: EM13770079

Given a territory and a time range, the gross domestic product is the sum of all the values added. The term value added is open to interpretation. Since the value added of a product or service is its total value minus the value of the intermediate product and services used to produce it, it follows that in an identical scenario, the GDP will vary according to what is classified as final products. Yet in reports, a single number is quoted as if it was the GDP.

For instance, a factory will need cleaning. Is the service of cleaning a factory considered a final product or intermediate consumption needed to produce whatever the factory produces?. What about the plant's paint, electricity, training of workers and so on?. People need to eat in order to work and produce, and more so the more they work (hence food may be classified as intermediate consumption), and need medical care to live (and hence produce) just like car factories need steel. I have seen these things sometimes taken to be final consumption. The consumption of decoration from a restaurant is a requirement (since people go to a restaurant in part, due to the style) and by that reasoning, it is intermediate consumption, but a luxury in one's house (therefore final consumption). When doing the accounting at an high level (city, state or national), how do the accountants know what part of the paint consumed take as intermediate consumption and what part to take as final consumption?.

The boundary between intermediate and final consumption seems blurry. How, and where is the line drawn. Could you please cite a (preferentially publicly available) relevant document from an organization in charge of computing a GDP about the methodology regarding the intermediate-final consumption?