Question

2. Adam's Ribs in downtown Chicago buys $10,000 worth of beef ribs, $25,000 worth of pork ribs, and $8,000 worth of napkins each month. Are these purchases included in the calculation of gross domestic product? Explain your answer.

Answer 1

Since Adam’s Ribs uses beef ribs and Pork Ribs as intermediate goods for its final product, so it will not be added in the GDP. If it gets added in the GDP calculation, it will lead to double counting of the goods, once here and once when we add the value of sales of Adam’s Ribs. To avoid this, we simply use the value of final good in the calculation of GDP.

Now, since napkins are used as final products at restaurant, their value, i.e. $8000 will be added in calculation of the GDP.

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