Friday, February 01, 2013

Double Counting

When finding the total value of GDP, you don't want to count intermediate goods:

INTERMEDIATE GOODS:
Goods (and services) that are used as inputs or components in the production of other goods. Intermediate goods are combined into the production of finished products, or what are termed final goods. Unlike final goods, intermediate goods will be further processed before sold as final goods. Because gross domestic product seeks to measure the market value of final goods, and because the value of intermediate goods are included in the value of final goods, market transactions that capture the value of intermediate goods are not included separately in gross domestic product. To do so creates the problem of double counting.
As the Alzheimer's question of the day, what are the three methods that can be used to find the total value of all goods and services produced in a year?

(Answers:  sum of all factor payments, sum of value added, or sum of final prices paid.)


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