Trying to get some clarification on how GDP is calculated for service industries.

Are input resources netted out (e.g. fuel for an airline), the same way wheat would be for a loaf of bread?

What about investment assets (e.g. airplanes for an airline) -- these get fully counted toward GDP the year they're purchased?

  • $\begingroup$ Remember that only final goods are counted in GDP. Services are counted in GDP at the prices paid for the services. That is what service industries claim on their taxes. As for investment assets, they are fully counted in they year they are made/completed (not purchased). They enter as inventory when they have not yet been sold, and then when they are purchased, they are subtracted from the inventory of the producer and added to the investment assets of the purchasing firm (netting zero effect on investment) $\endgroup$ – DornerA Apr 27 '16 at 2:26
  • $\begingroup$ Thanks very much! On the first question (about fuel), I guess trying to confirm the sectoral dynamics as well. If the airline's full ticket price is counted toward GDP, this means production of the fuel itself will not be applied separately, to avoid double counting, correct? Or speaking in terms of value-add, the fuel production industries (extraction, refining, transport) will each be allocated their appropriate shares based on the costs these items are sold at, and then the airline will be allocated the rest of final ticket costs (less other intermediate inputs) -- is this right? $\endgroup$ – Benji Decker May 3 '16 at 20:55
  • $\begingroup$ Further (sorry to add on!)... want to make sure I understand how investments are treated vs. final goods. Basically, if I buy a hammer for my house, this will be considered a final good, and applied directly toward GDP as part of the consumption variable. If a carpenter buys a hammer however, it will be considered investment, and applied immediately toward GDP the year it's completed (as you say), but then will have negative impact toward GDP in future years as the asset depreciates? $\endgroup$ – Benji Decker May 3 '16 at 21:06
  • $\begingroup$ Asset depreciation is not handled by GDP (mainly for practicality reasons because it would incredibly hard). If they could, I'm sure they would but it is just too hard. You are correct in you hammer analogy up until that point $\endgroup$ – DornerA May 3 '16 at 23:10
  • $\begingroup$ Ok, great! On the depreciation point, just to confirm, see Table 5.1 here. The line "Capital consumption adjustment, corporate" -- I guess this is something different than depreciation in the capital stock? $\endgroup$ – Benji Decker May 4 '16 at 14:12

Services will be calculated at the final price they are given in market. That price includes all value added items in providing the service. So, to calculate contribution of airlines in GDP, you just need to sum up the total value of tickets that are sold. Other things will automatically be counted in that.

  • $\begingroup$ Definitely! See comment reply above. Just trying to confirm some of the sector dynamics, and that 1) the only allocation for airlines though should be the value-add on top of input costs and then that 2) for investment assets like the airplanes, these are counted fully toward GDP immediately, and aren't considered intermediate goods in any way (such that they might already be counted in the cost of the ticket sales) $\endgroup$ – Benji Decker May 3 '16 at 20:59

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