A rancher raises alpaca. Once a year, he shears them and sells the raw wool to a processor who spins it into yarn. The yarn is then sold to a mill which produces and sells alpaca sweaters. In calculating GDP we would count
A) the raw wool, the yarn and the sweaters.
B) only the yarn and the sweaters.
C) only the sweaters.
D) only the raw wool and the yarn.

Question

Quizplus · Accepted Answer

GDP only counts the final goods and services produced in the economy, so we would only count the value of the alpaca sweaters as they are the final product sold to consumers. The value of the raw wool and yarn are considered intermediate goods as they are used in the production process and not sold directly to consumers. Therefore, only the value of the sweaters would be included in GDP.

A Rancher Raises Alpaca