Question

1. Intermediate goods and services are ____ production and _____ counted in GDP. A) at the end products of; are B) used up in the process of; are not C) the end products of; are not D) used up in the process of; are

2. Which of the following is not classified as a final good? A) A new car purchased by a family B) Fresh vegetables purchased by a restaurant C) New clothing purchased by a college student D) A new machine purchased by a business   
3. If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires, $100 for a car CD player, and sells cars made with these parts for $20,000, then each car the automobile manufacturer sells contributes how much to GDP?

A) $20,000                    B) $20,700                    C) $20,200                    D) $19,300   

4. If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers and uses to rest to make jam that is sold to consumers for $100,000, Bountiful Orchard's contribution to GDP is:

A) $100,000.                 B) $200,000.                 C) $50,000.                   D) $150,000.

Answer 1

Intermediate goods are the goods which are further used in the process of production to produce a final good. These goods remain within production boundary and are not ready for use. Some value has to be added to intermediate goods. They are not included in national income or GDP.

So, Intermediate goods and services are used up in the process of production and are not counted in GDP. Correct option is B).

Final goods are those goods which cross the production boundary and are ready for use. No value has to be added to the final goods. In the given case, car purchased by family and dress purchased by college student are termed as final goods as they are directly consumed. Machine purchased by business is not an intermediate good as it is not the raw material used in the production of final good. Fresh vegetables purchased by a restaurant is considered as intermediate good and not final good as some dish will be prepared from these vegetables and they will not be served directly.

So, the correct option is B).

According to output method, GDP includes the value of all final goods produced and not the value of intermediate goods. So, the value which will contribute to GDP by the car manufactured will be the final sale value of $20,000.

So, the correct option is A).

According to value added method, the contribution to GDP will be calculated by adding the value added to a good at each stage. Divide the peaches grown into 2 parts. First, the batch of $50,000 worth of peaches, directly sold and other batch of $50,000 in which value will be added of $50,000 to make jam. The total contribution to GDP will be $50,000(First batch) + $50,000(Second batch) + $50,000(Value added) = $150,000.

So, the correct option is D).