Question

1Why are intermediate goods not counted in the calculation of GDP?

A. These goods are not produced for the market.
B. These goods involve financial transactions.
C. These are produced in the underground economy.
D. That involves double counting.
E. The goods were not provided in the current year.

Answer 1

Intermediate goods are not included in GDP calculations to avoid double counting, which would overstate the economy's size. Only the value of final goods and services is counted, as the intermediate goods' value is included in the final product.

Step-by-step explanation:

Intermediate goods are not counted in the calculation of Gross Domestic Product (GDP) to avoid a problem known as double counting. Double counting would significantly overstate the size of the economy. Government statisticians count only the value of final goods and services sold for consumption, investment, government, and trade purposes. Intermediate goods, which are goods that go into producing other goods, like the components for a Ford truck, are excluded because their value is captured when the final product, such as the Ford truck, is sold.

For example, instead of counting the tires, engine, and metal that are used to make a vehicle, only the final sale value of the vehicle is included. This method ensures that the value of intermediate goods is accounted for in the final product, thus reflecting the actual market value of goods and services produced within a country during a specific period.