International income accounting, double counting occurs when

Analyzing the question

The question asks when double counting occurs in national income accounting. (The question says "international," but it is almost certainly a typo for "national.")

The concept

National income is measured using the final goods and services produced in a year. Final goods are goods bought by the end user, such as bread bought by a consumer. Intermediate goods are goods used up in producing other goods, such as flour used to make bread.

The price of the final good already includes the value of the intermediate goods used to make it. If you add the flour to the bread, the value of the flour is counted twice. This is double counting, and it overstates national income.

Working through the options

• A. Intermediate goods are counted twice. This is not quite precise. The problem is not that the intermediate goods are counted two times on their own. The problem is that their value gets counted again inside the final good.
• B. Intermediate goods are counted with the final goods. This is correct. When the value of the intermediate goods is added to the value of the final goods that already contain them, the same value is counted more than once.
• C. Final goods are counted more than twice. This is wrong. Counting final goods is the correct method.
• D. Different people count the products. This is irrelevant to the concept.

How to avoid double counting

1. Count only final goods and services, or
2. Use the value-added approach, where each stage of production counts only the value it adds.

Example: A farmer sells cotton for ₦100. A textile mill turns it into cloth and sells it for ₦250. A tailor makes a shirt and sells it for ₦400.

• Wrong: 100 + 250 + 400 = ₦750
• Right: the final value is ₦400. Using value added, 100 + 150 + 150 = ₦400.

**Answer: B.

Exam tip: Think "intermediate + final = double counting." If an option mentions intermediate goods being included along with final goods, it is usually the answer.