Question

What is the relationship between GDP and GVA, if the taxes earned by the government are more than the subsidies it provides?

• A. GDP $>$ GVA
• B. GDP $<$ GVA
• C. GDP = GVA
• D. Information is insufficient

Hint:

Remember the formula: $\text{GDP} = \text{GVA} + \text{Taxes} - \text{Subsidies}$.
- If Taxes $>$ Subsidies $\implies$ GDP $>$ GVA.
- If Taxes $<$ Subsidies $\implies$ GDP $<$ GVA.
- If Taxes = Subsidies $\implies$ GDP = GVA.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Gross Domestic Product (GDP) and Gross Value Added (GVA) are two primary measures used to estimate the national income of a country.
GVA measures the value of goods and services produced in an economy at basic prices.
GDP measures the final value of these goods and services at market prices, taking into account net product taxes.
Key Formula or Approach:
The mathematical relationship between GDP and GVA is given by:
\[ \text{GDP at Market Prices} = \text{GVA at Basic Prices} + \text{Product Taxes} - \text{Product Subsidies} \]
This can be rewritten as:
\[ \text{GDP} = \text{GVA} + \text{Net Product Taxes} \]
Where:
\[ \text{Net Product Taxes} = \text{Product Taxes} - \text{Product Subsidies} \]

Step 2: Detailed Explanation:
The question specifies that the taxes earned by the government are more than the subsidies it provides.
This condition can be written as:
\[ \text{Product Taxes} > \text{Product Subsidies} \]
Subtracting product subsidies from both sides gives:
\[ \text{Product Taxes} - \text{Product Subsidies} > 0 \]
Thus, the value of Net Product Taxes is positive:
\[ \text{Net Product Taxes} > 0 \]
Substituting this back into the formula:
\[ \text{GDP} = \text{GVA} + (\text{a positive number}) \]
This directly implies that:
\[ \text{GDP} > \text{GVA} \]

Step 3: Final Answer:
The correct option is (A).