If GDP is supposed to measure the value of a regions output, it seems like you should need to adjust the price of imports, otherwise it seems like your GDP could increase just by having cheaper imports, even if no new value was created.
Consider an economy that only makes cars between years 1 and 2. If:
– The output of cars stays the same
– The price level of cars stays the same
– Imports of steel (used to make the cars) remain the same but price decreases
In this case it looks like GDP would increase due to the price change in imports because the value of imports is subtracted from GDP and consumption stayed the same. However, the physical production of cars is the exact same so no new value was created.
What am I missing here?
Why don’t we adjust the prices of Imports when calculating GDP?
byu/Busy-Apricot-1842 inAskEconomics
Posted by Busy-Apricot-1842