Answer to Question #79568 in Macroeconomics for Niya

Question

How including capital goods(machinery) in final product produced by them result in double counting? How this problem is solved. Pls explain the whole process with an example.

Answer 1

Double counting relates to the counting of the value of products more than once. Based on the output method of counting national income, the value of products produced annually should be counted. As a result, the value of intermediate goods such as paper used in printing books are not taken into account. However, while taking value of final products, the value of intermediate products is taken into consideration since producers consider every commodity as final products irrespective of their value. Double counting is avoided is through final products approach. This approach ensures that products are evaluated through consideration of the seller’s perspective since the producer may sell final products that are regarded as intermediate product by the seller. For example, value addition is used to solve Double counting through evaluating the cost of intermediate goods to determine the value added to products during the production process. Thus, the value added is determined by subtracting the value of inputs from the value of outputs of the intermediate and final products respectively.