Question

1. An economy produces turkey, bread and sandwiches. The turkey industry sells all of its production for $1,000 to the sandwich industry. The bread industry sells $1,000 of its production to the sandwich industry and the rest of its production for $1,000 to a grocery store. The grocery store sells all of the bread for $2,000 to consumers. The sandwich industry sells its turkey sandwiches for $3,000 to consumers. No firm keeps any inventories. The GDP of this economy is $ 2. Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking

Answer 1

The GDP or gross domestic product is the value of total output produced in the economy in a given time period and within a geographical limit. The GDP is measured by three methods and these are the expenditure approach, the income approach, and the value-added approach. In the value-added approach, the price at the final point of consumption chain is taken into account and value-added at the intermediate levels is subtracted to avoid what is called double counting.

In this example, bread and turkey are input products for the sandwich industry. The bread also sold to the grocery store and the store sells it to the consumers for $2000. On the other hand, the sandwich industry also sells its sandwiches to consumers for $3000. These products are sold to consumers and the consumers are the last in the chain of consumption so these are the prices needs to be considered for the GDP calculation

3000 + 2000 = 5000
The GDP is $5000 of that economy.