<p>First, note that GDP is not the quantities of all goods and services produced in that year multiplied by their prices in some base year, but the quantities of all <strong>final</strong> goods and services produced in that year multiplied by their prices. Intermediate goods and services are not included.</p>

<p>1) GDP is about value created in the economy. So, if there are new services or products, we should simply include them. For the price, we take the price in that year and deflate it using a factor that accounts for inflation. Note also that new services and products typically come at the expense of other products produced. People that would otherwise be, say, working at a factory, are now programming apps.</p>

<p>2) As you would with oranges and apples. Lawyers typically charge a price per hour. So, it would be number of hours times the price. For more general services, like, say, the police force, you would just calculate the costs of the police force for a given year. </p>

CC BY-SA 3.0
2017-11-01T14:33:04.113Z
2017-11-02T17:46:32.927Z
2017-11-02T17:46:32.927Z
Maarten Punt
<p>My book says the way we calculate real GDP in a given year is by adding the quantities of all goods and services produced in that year multiplied by their prices in some base year. There are actually two things I can't quite get: </p>

<ol>
<li><p>How do we account for goods and services that exist now but weren't
around in the base year? I mean, especially today, with things such
as the market for apps, startups, and the increasing number of new
products that get released on an almost daily basis, wouldn't the
real GPD calculated that way become dated really fast? </p></li>
<li><p>This might turn out to be a really silly question, but how do we
take into account quantities of services that are provided in a
given year, such as lawyer services, marketing services etc.? All
examples I've seen of calculating real GDP were of the sort
"consider an economy that produces only apples an orange...".</p></li>
</ol>

<p>Thanks very much in advance. </p>

<gdp>
Basic question on calculating real GDP
Sasaki
# Basic question on calculating real GDP

(Asked by: username_0 on 2017-11-01)

My book says the way we calculate real GDP in a given year is by adding the quantities of all goods and services produced in that year multiplied by their prices in some base year. There are actually two things I can't quite get:

1. How do we account for goods and services that exist now but weren't
   around in the base year? I mean, especially today, with things such
   as the market for apps, startups, and the increasing number of new
   products that get released on an almost daily basis, wouldn't the
   real GPD calculated that way become dated really fast?
2. This might turn out to be a really silly question, but how do we
   take into account quantities of services that are provided in a
   given year, such as lawyer services, marketing services etc.? All
   examples I've seen of calculating real GDP were of the sort
   "consider an economy that produces only apples an orange...".

Thanks very much in advance.

**Tags:** gdp

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## 1 answers

### Answer by username_1 on 2017-11-01. Score: 4 | Accepted answer

First, note that GDP is not the quantities of all goods and services produced in that year multiplied by their prices in some base year, but the quantities of all **final** goods and services produced in that year multiplied by their prices. Intermediate goods and services are not included.

1) GDP is about value created in the economy. So, if there are new services or products, we should simply include them. For the price, we take the price in that year and deflate it using a factor that accounts for inflation. Note also that new services and products typically come at the expense of other products produced. People that would otherwise be, say, working at a factory, are now programming apps.

2) As you would with oranges and apples. Lawyers typically charge a price per hour. So, it would be number of hours times the price. For more general services, like, say, the police force, you would just calculate the costs of the police force for a given year.


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