EC140 Chapter Notes - Chapter 20: Gdp Deflator, Retained Earnings, Final Good
meghan78 and 39778 others unlocked
21
EC140 Full Course Notes
Verified Note
21 documents
Document Summary
When calculating gdp, you can"t just add up the value of each separate output because one firm"s output is often another firm"s input this leads to double counting . Intermediate goods: outputs that are used as inputs in a further stage of production. Final goods: goods that are not used as inputs by other firms but are produced to be sold for consumption. Total output = sum of all final goods. When measuring output, economists use the concept of value added = sales revenue - cost of intermediate goods (excluding labour costs) Each firm"s contribution to total output = value added. Sum of all values added = gdp. Value added = payments owed to the firm"s factors of production. Think of it this way: if i spend on intermediate goods, and end up selling my good (the final good) for , then the value added is .