When calculating Gross Domestic Product (GDP), how are intermediate goods treated?

• A. They are included in GDP if purchased by households.
• B. They are included along with final goods to reflect total production.
• C. They are counted only if they are exported.
• D. They are excluded to avoid double counting, as only final goods and services are included in GDP.

Answer: (D)

Verified step by step guidance

1. Understand the definition of Gross Domestic Product (GDP): GDP measures the total market value of all final goods and services produced within a country during a specific period.
2. Recognize the difference between intermediate goods and final goods: Intermediate goods are products used as inputs in the production of other goods, while final goods are ready for consumption or investment.
3. Recall the reason for excluding intermediate goods from GDP: Including intermediate goods would result in double counting because their value is already embedded in the price of the final goods.
4. Note that only final goods and services are included in GDP to accurately reflect the value of production without duplication.
5. Conclude that intermediate goods are excluded from GDP calculations regardless of who purchases them, ensuring GDP measures only the value of final output.