Intermediate goods and services are not included in gross domestic product (GDP) because:?

Question

A. They are imported and not produced locally

B. They are not produced

C. To do so would result in their market value being included more than once

D. They do not have a market value

Answer 1

C

Hypothetically: My country produces sealskin jackets, using only the finest in baby seals. So I go club a baby seal and rip off it's skin. The skin is worth 100$. But I use the skin to make a jacket, and that jacket sells for 200$. So, only 200$ is contributed to the GDP because the $100 seal skin was "consumed" during production. It would be redundant to have 300$ contributed to the GDP when only one $200 final good was produced.

My prof used the example of bread (it's a little less exciting than clubbing baby seals), but here goes. The farmer farms some oats. The farmer sells those oats for 1$. Another famer buys those oats and refines them and sells the "fancy refined oats for 2$. These refined oats are sold to a bakery where the bakers make bread and sell the loaf of bread for 3$. If you added in the original cost of oats then refined oats plus the final product of bread, you're looking at 6$ for a loaf of bread added to the GDP. But you cannot retrieve those 5$ of oats because they've been added into the bread...so you'd be adding something to the GDP that is no longer available for sale.

Just think about what GDP is - the final sale of all goods and services produced within a country in a given period.

Answer 2

C

we should only count the same widget one time. Counting the parts of the widget before the widget is made and then counting the widget after it is made would give us an inaccurate idea of what we're making.

For example - we count cars but not car parts used to make those cars because we can't the parts when it becomes a car. ☺

Answer 3

D :- cost of not, but profit on it ...is part of GDP in income approach. but imports are also covered under exim difference. C :- GDP all the way. B :- spending is part of GDP. whatever it is. A :- GDP all the way.