Question

Company A produces paper and sells it to Company B for a total of $183. Company B uses the paper to make books and then sells the books to consumers for a total of $342.What is the value of GDP in this simple economy?

Answer 1

Answer:

$159

Explanation:

Value = cost of books - cost of paper

342 - 183 = 159

Gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

GDP calculated using the expenditure approach = Consumption spending by households + Investment spending by businesses + Government spending + Net export

the cost of paper is not included because it is an intermediate good and not a final good.

An intermediate good is a good that is used in the production of the final good.

If it is added to GDP, it would result in double counting

Answer 2

The value of GDP in this simple economy is $159.

A gross domestic product is the total sum of final goods and services produced in an economy within a given period which is usually a year

The formula for GDP is Consumption spending by households + Investment spending by businesses + Government spending + Net export

Note that "the cost of paper is not included because it is an intermediate good and not a final good and an intermediate good is a good that is used in the production of the final good"

The value of GDP = Cost of books - Cost of paper

The value of GDP = 342 - 183

The value of GDP = 159

In conclusion, the  value of GDP in this simple economy is $159.

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