Final answer:
GDP is calculated by adding the value created by each firm in the production of final goods and services to avoid double counting. Intermediate goods are excluded because their value is encapsulated in the final goods. Option c is the correct answer.
Step-by-step explanation:
To calculate GDP using the value-added method, we add up the value added by each firm involved in the production of final goods and services. GDP stands for Gross Domestic Product and represents the current value of all final goods and services produced in a nation within a year. When calculating GDP, it is crucial to avoid the problem of double counting.
Final goods refer to products that have reached the furthest stage of production at the end of a year. To ensure accuracy, statisticians only count the value of these final goods and services, excluding intermediate goods—those used in the production of other goods. If intermediate goods were included, such as the value of tires on their own and then as part of the final value of a truck, it would result in overestimating the economy since the truck's price already reflects the value of the tires.
The correct answer to the question is: c. the value added by each firm involved in the production of final goods and services.