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used to produce the book. In a way, we can
say that the book is paper and ink (book
ink). If we were to calculate the
GDP by adding together the value of the
book, the paper, and the ink (book
i nk), we would, in effect, be
counting the paper and ink twice. Because
the book is paper and ink, once we count
the book, we have automatically counted
the paper and the ink. It is not necessary to
count them again.
A car is made up of many
intermediate goods: tires, engine, steering
wheel, radio, and so on. When computing
GDP, we count only the market value of the
car, not the market value of the car plus the
market value of the tires, engine, and other
EXAMPLE: QUESTION: I assume that each country in the world computes its GDP. Why is
GDP so important?
ANSWER: Countries are interested in computing their GDP for much the same
reason that individuals are interested in
knowing their income. Just as knowledge
of your income from one year to the next
lets you know “how you’re doing,” GDP
does much the same...
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This document was uploaded on 01/16/2014.
- Winter '14