The production calculation is a method for calculating the gross domestic product and gross value added. It is used to calculate the economic performance of an economy.
This lesson explains the meaning and use of the production analysis to calculate gross value added and gross domestic product. This is then illustrated using Germany as an example, before you can check your newly acquired knowledge with a few exercise questions.
Why should you know the production calculation?
The production calculation is one of three methods for calculating the gross domestic product. In addition, it is the method with which the gross value added of an economy can be determined.
According to electronicsencyclopedia, the production calculation for the national accounts is of correspondingly high relevance. The production analysis is also very well suited to compare the performance of different economic sectors with one another.
Calculation of the gross value added using a production calculation
In addition to the usage calculation and the distribution calculation, the production calculation is one of three methods of calculating the gross domestic product. In doing so , it considers the gross domestic product from the production side, whereby the correct calculation of the gross value added is assumed as an intermediate result.
Methods of calculating GDP
In the first step, the macroeconomic output value must therefore be calculated, which in turn is composed of the output values of the individual companies or economic sectors.
When calculating the production value, the preliminary work is always to be deducted, otherwise an excessively high gross value added will be delivered as a result due to double counting. These intermediate inputs are goods and services that are processed, consumed or converted as part of the production process. This can be, for example, raw materials, consumables and supplies.
Once the production values of the companies have been calculated, the production values of the following economic sectors can be determined:
- Agriculture, forestry and fishing
- construction industry
- Commerce, hospitality and transport
- Financing, rental and business services
- Public and private service providers
With the production calculation, gross value added and gross domestic product can now be calculated on the basis of production.
As a result of the addition of all economic sectors, we get the “unadjusted gross value added”. The imputed bank fees are deducted from this, which means only those banking services for which no fees are charged. This brings us to the adjusted gross value added, from which the gross domestic product can be calculated after deducting subsidies and adding taxes.
|Production values of all economic sectors at market prices|
|=||Value creation of the economic sectors|
|=||unadjusted gross value added|
|–||imputed bank charges|
|=||adjusted gross value added|
|+||Taxes on goods|
|–||Subsidies on products|
|=||gross domestic product|
Representation of the economic structure in Germany
With the help of the “nominal gross value added”, the structure and development of the individual economic sectors can be represented on the basis of the generation calculation.
In 2014, for example, Germany’s gross value added amounted to 5,367.1 billion euros. If the advance payments of 2727.3 billion euros are deducted, this results in gross value added of 2639.8 billion euros. If taxes on products are now added and subsidies on products deducted, the result is a gross national income of 2932.5 billion euros.
By 2017, the production value increased to 5845.9 billion euros. If the advance payments of 2,904.6 billion euros are deducted from this, we come to gross value added of 2,941.3 billion euros. The taxes on products were 329.3 billion this year and are added, the subsidies on products of 7.3 billion are subtracted.