Question

How is the following treated in national income calculation?

Intermediate goods

Answer 1

Intermediate goods are excluded from national income calculation because they are used as inputs in the production of other goods within the same year and are not for final consumption. Including them would lead to double counting, as their value is already included in the final goods’ value. To avoid this, only final goods and services intended for ultimate use, and not for resale or further processing, are included, ensuring an accurate measure of a country’s actual production and economic output.