Q1. [1] medium thorough-understanding
[mcq] Which of the following best explains why GDP counts only the value of final goods and services, and not intermediate goods?
((A)) Intermediate goods are produced in the primary sector, which is considered less important.
((B)) Adding the value of intermediate goods along with final goods would count the same value multiple times, inflating the GDP figure.
((C)) Intermediate goods are always imported and therefore excluded from domestic production.
((D)) Final goods are always more expensive than intermediate goods, making them a better measure of economic size.
- A Intermediate goods are produced in the primary sector, which is already counted separately.
- B The value of all intermediate goods used is already embedded in the price of the final good, so including them again would count the same value more than once.
- C Intermediate goods are imported and therefore excluded from the domestic product.
- D Final goods are always more expensive than intermediate goods, making the calculation simpler.
Generated by claude-sonnet-4-6 · 2026-06-26 13:22 · grounding rag
Model Answer
Answer: (B)
The value of final goods already includes the value of all intermediate goods used in their production. Counting intermediate goods separately would mean counting the same value more than once, inflating the GDP figure.
Source: Comparing the Three Sectors, Chapter 2
Explanation
The textbook explicitly states: "The value of final goods already includes the value of all the intermediate goods that are used in making the final good." The biscuit example (wheat → flour → biscuits) illustrates this — counting wheat, flour, and biscuits separately would triple-count the same value. Options A, C, and D are factually incorrect as per the chapter. Examiners expect students to use the term "double/multiple counting" and link it to why only final goods are included in GDP.