Illustrate the example for double counting.
Explanation of Solution
Double counting is the problem of estimating the values of goods and services more than once. During the accounting process of
For example, a firm sells cars at a cost of $28,000, and the company paid $250 for tires and $10,000 for other parts. Including all intermediate goods, the car will sell at the price of $28,000 and not by $38,250 ($28,000+ $250+$10,000). Hence, the GDP avoids double counting problem by including only the final values of goods and services.
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