In the expenditure approach to measuring GDP, why are intermediate goods not included in GDP as separate purchases?

• A. Because intermediate goods are always imported and imports are excluded from GDP by definition.
• B. Because intermediate goods are counted only when they are sold to households, not when they are sold to firms.
• C. Because intermediate goods are not produced within firms and therefore are not part of market transactions.
• D. Because their value is already embodied in the market value of final goods, so counting them separately would double-count production.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the expenditure approach to GDP, which calculates GDP by summing the market value of all final goods and services produced within a country during a specific period.
2. Step 2: Define intermediate goods as goods that are used as inputs in the production of final goods and services, rather than being sold directly to consumers.
3. Step 3: Recognize that including intermediate goods separately in GDP would mean counting their value twice—once when sold as intermediate goods and again when included in the final goods' prices.
4. Step 4: Note that GDP aims to measure the value of final output to avoid this double counting, so only the market value of final goods and services is included.
5. Step 5: Conclude that intermediate goods are excluded from GDP as separate purchases because their value is already embedded in the price of final goods, ensuring an accurate measure of total production.