Question

1.5) Assume that intel sells $1billion of computer chips to Dell Inc for use in Dell's personal computer. how does this transaction affect the aggregate expenditure?

Answer 1

When Intel sells $1 billion of computer chips to Dell Inc for use in Dell's personal computer,such a transaction will have no effect on the aggregate expenditure.

Computer chips are an example of intermediate goods.Intermediate goods are combined or used as inputs for the production of final goods.So they will be further processed and then sold as final goods.As in case of the above example the value of the chip will be included in the value of the final Dell computer,so including the value of the computer chip will lead to double counting.They are only considered once as a part of the final product and so such a transaction has no effect on the aggregate expenditure.