Question

Economists include only final goods and services when measuring GDP for a specific year because a. If intermediate goods were not counted, then prices would be overstated. b. If intermediate goods were counted, then prices would be overstated. c. If intermediate goods were not counted, then multiple counting would occur. d. If intermediate goods were counted, then multiple counting would occur.

Answer 1

Answer: d. If intermediate goods were counted, then multiple counting would occur.

Explanation: Gross domestic product (GDP) measures economic output--the value of final goods and services produced within a country's borders. If intermediate goods (goods that are used to make final products) were counted, then multiple counting would occur. This is the reason why in calculating the gross domestic product (GDP) for a specific year, only final goods and services (goods and services that are ready for sale or use) are included. Doing this does not mean that intermediate goods and services are not factored in in its calculation. What it means is that each intermediate step in a supply chain counts the value added at each step leading to the production of the final good.