1. Final Goods, Intermediate Goods and Value Added
2. Define the difference between final and intermediate goods.

II. Consider five firms in the closed economy: a steel producer, rubber producer, machine tool maker, tyre producer, and bicycle manufacturer. The bicycle manufacturer sells bicycles produced to final customers for $1600. In producing the bicycles, the firm buys tyres ($200), steel ($500), and machine tools ($360). The tyre manufacturer buys rubber ($120) from rubber producer and machine tool maker buys steel ($200) from the steel producer. Identify final and intermediate goods for the economy.

(a) Calculate the value of total sales; the value added by each firm and the total value added; the value of intermediate product of each firm and the value of total intermediate product; the total final expenditure, the value of GDP.

(b) What is the relation between the value of total sales, the value of final product, the total value added and the value of intermediate product? Why would inclusion of final and intermediate goods in measuring GDP involve double accounting?

(c) Does gross domestic product measure the domestic output of all final goods and services?