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A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the flour into bread, which she sells to consumers for $180. Consumers eat the bread. a. What is GDP in this economy? Explain. (2) b. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of the three producers. (1.5) c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP?

Sagot :

The GDP of the economy is $180.

The value added by the farmer is $100.

Value added by the miller is $50.

The value added by the baker is $30.

The total value added by the farmer, miller and baker is $180.

Another method of calculating GDP is the value added method.

Gross domestic product can be defined as the total sum of final goods and services that an economy produces in a given year.

One of the methods that can be used to determine the value of GDP of a country is the expenditure approach.

GDP = Consumption spending + business spending + government spending + net export.

When calculating the value of GDP, intermediate products aren't included in the determination of GDP. This means that the only amount that would be added in the calculation of GDP is $180.

The value added by the farmer = $100

Value added by the miller = $150 - $100 = $50

The value added by the baker = $180 - $150 = $30

The total value added = $100 + $50 + $30 = $180.

The value added of the three individuals is the same as the GDP calculated.

The value added method is another method that can be used to determine the value of GDP of a country. All things equal, the value added method should equal the GDP of the country.

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