why we do not include the value of intermediate goods in calculating GDP
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Answered by
7
If we include the value of intermediate goods than there will be double counting as the value of intermediate goods is already included in the value of final goods.....
SO the value of final good is only counted for calculating GDP as final goods are made from intermediate goods and so include their value...
SO the value of final good is only counted for calculating GDP as final goods are made from intermediate goods and so include their value...
Answered by
19
Let see an example :-
A biscuits company need flour, sugar etc
Cost of flour = Rs 10 / kg
And Cost of sugar = Rs 40/kg
If the company prepare 100 packets in which, the total flour used is 10 kg and sugar used is 2 kg
Total cost of flour and biscuits = Rs 180
And every pack of biscuit is sold for Rs 10
GDP = Rs 10 × 100 = Rs 1000
=> We have seen that, to make the biscuits we have bought flour and sugar, so the price of intermediate good ( flour and sugar) is already included. That's why we do not include value of intermediate goods in GDP.
A biscuits company need flour, sugar etc
Cost of flour = Rs 10 / kg
And Cost of sugar = Rs 40/kg
If the company prepare 100 packets in which, the total flour used is 10 kg and sugar used is 2 kg
Total cost of flour and biscuits = Rs 180
And every pack of biscuit is sold for Rs 10
GDP = Rs 10 × 100 = Rs 1000
=> We have seen that, to make the biscuits we have bought flour and sugar, so the price of intermediate good ( flour and sugar) is already included. That's why we do not include value of intermediate goods in GDP.
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