State whether the following statements are true or false. 2) Inclusion of value of intermediate goods leads to double counting.

State whether the following statements are true or false.

2) Inclusion of value of intermediate goods leads to double counting.

Answer: 

Inclusion of value of intermediate goods leads to double counting. - True

Explanation:

The above statement is correct. Inclusion of the value of intermediate goods leads to double counting as the value of intermediate goods is already reflected in the value of the final goods. Thus, if the value of intermediate goods is also included in the calculation of income, then it would mean that their value is included twice, first as their own value and second as a part of the value of final goods. Thus, to avoid this problem only the value of final goods and services is included in the estimation of national income.

No comments: