Question

Why do economists include only final goods and services when measuring GDP for a particular year? Why don’t they include the value of the stocks and bonds bought and sold? Why don’t they include the value of the used furniture bought and sold?

Answer 1

GDP is supposed to measure the amount of goods and services produced within the country in a particular year. If we include all the intermediate goods involved in production, there will be double counting of them in the GDP since the value added by them is already included in the final value of the good. In order to avoid such double counting, only the final goods and services are included when measuring GDP for a particular year.

The selling of stocks and bonds does not lead to the production of new goods or services and generation of added value. Their value is merely based on speculation about their future prices, and when the actual value goes beyond the stock price based on the speculated value, there is a gain from the stock. However, this involves no actual production of goods and services. therefore It is not included in the GDP.

The value of used furniture has already been included in the GDP of the year in which It was originally produced and sold. The resale of the furniture does not involve any new production, and is not included in the GDP.