Multiple Choice
Using the expenditure approach to measuring GDP, which of the following is NOT included in GDP for the current year?
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10. Measuring National Output and Income
Expenditure Approach for Measuring GDP
Multiple Choice
In the expenditure approach to measuring GDP, why are intermediate goods not included in GDP as separate purchases?
A
Because intermediate goods are always imported and imports are excluded from GDP by definition.
B
Because intermediate goods are counted only when they are sold to households, not when they are sold to firms.
C
Because intermediate goods are not produced within firms and therefore are not part of market transactions.
D
Because their value is already embodied in the market value of final goods, so counting them separately would double-count production.
Verified step by step guidance1
Step 1: Understand the expenditure approach to GDP, which calculates GDP by summing the market value of all final goods and services produced within a country during a specific period.
Step 2: Define intermediate goods as goods that are used as inputs in the production of final goods and services, rather than being sold directly to consumers.
Step 3: Recognize that including intermediate goods separately in GDP would mean counting their value twice—once when sold as intermediate goods and again when included in the final goods' prices.
Step 4: Note that GDP aims to measure the value of final output to avoid this double counting, so only the market value of final goods and services is included.
Step 5: Conclude that intermediate goods are excluded from GDP as separate purchases because their value is already embedded in the price of final goods, ensuring an accurate measure of total production.
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