Question

How are intermediate goods treated in the calculation of GDP?

1) Their value is not counted separately, but included as part of the value of the final good for which they are an input.
2) They are included only if they are imported.
3) Their value is counted separately, but is not included as part of the value of the final good for which they are an input.
4) Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input.

Answer 1

Intermediate goods are not counted separately in GDP; their value is included in the final goods for which they are inputs to avoid double counting and overstatement of the economy.The correct answer is option 4.

Step-by-step explanation:

In the calculation of Gross Domestic Product (GDP), intermediate goods are treated in a specific way to avoid the issue of double counting. Intermediate goods, which are goods used as inputs to produce other goods, do not have their value counted separately in the GDP.

Instead, their value is included in the final value of the goods for which they are an input. For instance, the value of tires produced by a tire manufacturer is not counted on its own but is included in the value of the final vehicle sold by an automaker, such as a Ford truck.

Therefore, the correct answer to how intermediate goods are treated in the calculation of GDP is: 1) Their value is not counted separately, but included as part of the value of the final good for which they are an input. This method helps to accurately reflect the economy's size without the distortion that would occur if the value of intermediate goods was counted more than once.