ECON 209 Chapter Notes - Chapter 20: Common Wheat, Intermediate Good, Final Good
8 Oct 2014
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Chapter 20 the measurement of national income. Central topic of macroeconomics: aggregate output and the income that is generated by this production. Production occurs in stages: some firms produce outputs that are used as inputs by other firms, and these other firms, in turn, produces outputs that are used as inputs by yet another firm. So, if we just added up the market values of all outputs of all firms, we would obtain a total greatly in excess of the value of the economy"s actual output. This is called double counting (i. e. wheat, flour, bread -> wheat counted 3 times). The problem of double counting could be solved by distinguishing between two types of outputs: intermediate goods, are outputs of some firms that are used as inputs by other firms. Final goods, are products that are not used as inputs by other firms, but are produced to be sold.
