A rancher raises sheep. Once a year he shears them and sells the raw wool to a processor who cleans it and spins it into yarn. The yarn is then sold to a knitting mill, which produces and sells sweaters. In calculating GDP we would count

Question

Quizplus · Accepted Answer

Only the final goods and services are counted in GDP. In this case, the final good is the sweater, as it is the end product that is sold directly to consumers. The raw wool and the yarn are intermediate goods, as they are used in the production of the sweater but are not sold directly to consumers. Therefore, they are not counted in GDP.

A Rancher Raises Sheep