Why is the value of intermediate goods not added separately to the value of final goods while estimating Gross National Product (GNP)?
Answer and explanation
Correct answer: To avoid double counting
Intermediate goods are inputs used in producing final goods. The selling price of a final good normally includes the value of the intermediate inputs already used to make it. If the intermediate good and the final good were both counted at their full selling prices, the same production would be recorded more than once. National output is therefore measured by counting final goods or by summing value added at each production stage.
Frequently asked questions
What is the correct answer to this question?
To avoid double counting
Why is this the correct answer?
Intermediate goods are inputs used in producing final goods. The selling price of a final good normally includes the value of the intermediate inputs already used to make it. If the intermediate good and the final good were both counted at their full selling prices, the same production would be recorded more than once. National output is therefore measured by counting final goods or by summing value added at each production stage.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Aggregates related to national income - GNP.
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