Question

Explain how the value of intermediate goods are accounted for in the GDP data, in the following three circumstances: 1) they are used to produce final goods in the current year; 2) they are left over to be turned into final goods in the following year; and, 3) they are imported from a foreign country and used to produce final goods in the current year.

Answer 1

1. The value of intermediate goods when used to produce final goods in the current year will be considered already in the value of the final goods hence to avoid double counting specific value of intermediate goods will be ignored.

2. Any intermediate goods that are left over to be turned into final goods will not be considered in this year's GDP as it will be counted when the final goods are produced and sold in the market.

3. Any intermediate goods imported will not be considered in the GDP at all as GDP only considers products and services produced at home country.