What is the Problem of Double Counting GDP?

We define GDP as the current value of all final goods and services produced in a nation in a year. 

Final goods are goods at the furthest stage of production at the end of a year. 

Statisticians who calculate GDP must avoid the mistake of double counting, in which they count output more than once as it travels through the production stages. 

To avoid this problem, which would overstate the size of the economy considerably, government statisticians count just the value of final goods and services in the chain of production that are sold for consumption, investment, government, and trade purposes. 

What is Not Included in GDP?

Statisticians exclude intermediate intermediate goods, which are goods that go into producing other goods, from GDP calculations. 

The sales of used goods are not included  in GDP because they were produced in a previous year and are part of that year’s GDP. 

The entire underground economy of services paid “under the table” and illegal sales should be counted, but is not, because it is impossible to track these sales. 

Transfer payments, such as payment by the government to individuals, are not included, because they do not represent production. 

Also, production of some goods—such as home production as when you make your breakfast—is not counted because these goods are not sold in the marketplace.