Final answer:
The distinction between intermediate and final goods is important for measuring GDP because it helps to avoid double counting and provides a more accurate representation of the economy's size.
Step-by-step explanation:
The distinction between intermediate and final goods is important for measuring GDP because it helps to avoid double counting and provides a more accurate representation of the economy's size. Intermediate goods are goods that go into the production of other goods, while final goods are goods that are sold for consumption, investment, government, and trade purposes.
By only counting the value of final goods and services, GDP eliminates the production of intermediate goods and prevents the overstatement of the economy's size. For example, if a car manufacturer counts the value of both the car and the tires it produces as part of its GDP, it would be double counting since the value of the tires is already included in the car's price. Therefore, excluding intermediate goods from GDP calculations ensures that each product or service is only counted once, providing a more accurate measure of economic activity.