Explain why only final goods are included in GDP
What will be an ideal response?
Final goods are those that are sold to ultimate or final purchasers as opposed to intermediate goods, which are goods that are used in the production process. Suppose for example that a farmer grows potatoes and then sells them to a fast food chain that uses them to make fries, which are then sold to the public. If both the potatoes and the fries were counted then the same thing would be counted twice; in other words, the potatoes would be counted when they were potatoes and then again when they were in the form of the fries. In order to avoid this double counting only the final goods are included in GDP.
You might also like to view...
Which of the following would most likely induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in
A) business taxes. B) oil prices. C) investment spending. D) income tax rates.
A price ceiling represents
A. a minimum price that can be legally charged for a good or service. B. a first come, first served mechanism for controlling prices. C. a maximum price that can be legally charged for a product or service. D. a lottery imposed upon producers by the government.