Q1. [1] medium thorough-understanding
Which of the following correctly explains why economists use the value of final goods and services — rather than all goods and services — to measure total production?
((A)) Intermediate goods are not produced within the country's borders.
((B)) Counting all goods and services would lead to double-counting, inflating the actual value of production.
((C)) Intermediate goods are always imported, so they are excluded from domestic calculations.
((D)) Final goods have a higher monetary value than intermediate goods and thus represent production more accurately.
- A Intermediate goods are too difficult to price accurately in the market.
- B Including intermediate goods would count the value of the same inputs more than once, inflating the total.
- C Final goods are always more expensive than intermediate goods, so they represent the economy better.
- D Only final goods are produced in the secondary sector, making them easier to track.
Generated by claude-sonnet-4-6 · 2026-06-26 13:22 · grounding rag
Model Answer
Answer: (B)
Only final goods and services are counted because the value of intermediate goods (like wheat and flour) is already included in the final good's price. Counting them separately would mean counting the same value more than once, inflating total production.
Source: Comparing the Three Sectors, Chapter 2
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Explanation
The textbook uses the wheat → flour → biscuit example to explain this directly: the value of biscuits (Rs 80) already includes the value of flour and wheat. Counting all three would count the same inputs multiple times — this is double-counting. Examiners look for the phrase "double-counting" or the idea that "value of intermediate goods is already included in the final good." Options A, C, and D are factually incorrect per the textbook.