Question

If we add up the value of every good and service produced in the economy, we get a total that is______________

A) Larger than GDP.
B) Smaller than GDP.
C) Equal to GDP.
D) Larger or smaller than GDP depending on whether the economy experiences inflation during the year.

Answer 1

The sum of the value of every good and service produced in the economy is equal to the Gross Domestic Product (GDP), which carefully avoids double counting by only including final goods in its calculation. Option C.

Step-by-step explanation:

When we add up the value of every good and service produced in the economy, we get a total that is equal to the GDP. Gross Domestic Product (GDP) measures the value of all goods and services produced within a country's borders in a specific period.

To ensure accuracy, GDP calculations focus on final goods to avoid the problem of double counting, where intermediate goods might be counted more than once during different stages of production.

For example, the value of tires is not counted separately when they are produced if they will be included in the total value of the final product, like a truck. Therefore, only the value of the truck, which incorporates the value of the tires, will be counted.

It is essential to understand the GDP concept as it reflects the accurate dollar value of the entire economy's output.

Government statisticians have the task of calculating this, which involves significant complexity and precision, given the immensity of an economy such as the United States with a GDP in the multiple trillion-dollar range. Option C.