Q4. Why do economists include only f... [FREE SOLUTION]

Chapter 7: Q4. (page 151)

Why do economists include only final goods and services when measuring GDP? Why don鈥檛 they include the value of the stocks and bonds bought and sold? Why don鈥檛 they include the value of the used furniture bought and sold?

Short Answer

Expert verified

The intermediate goods are not included in counting because it will result in double-counting, which will not help calculate the exact value of GDP.

The buying and selling of stocks and bonds do not include any productive activity and, therefore, are not included.

Used furniture is an already sold good, and if included, it will result in double counting. Only the change in ownership occurs in this process.

Step by step solution

Reason for including only finished goods while measuring GDP

GDP is the total value of all goods and services produced in a particular country for a specific period. Suppose the intermediate goods are considered for calculating the GDP. In that case, it will result in the recounting of the value of goods and services as they are already added in the final value. Therefore, the value of GDP will be more than that of actual GDP.

Non-productive transactions

These transactions include financial transactions and second-hand sales. The buying and selling of bonds are kinds of financial transactions. Since these transactions are non-productive, the sales and purchase of bonds and stocks are not included in the GDP calculations.

The purchase of used furniture is also non-productive as it is a second-hand sale. The purchase of these goods will result in recounting, and these transactions do not generate any productive income for the country. So the value of used furniture that is bought and sold is not included while measuring GDP.