Question

Firm A produces desks. It is situated in the US but imports wood from Brazil. Last year it imported $8,000 in lumber and sold 100% of its production for a total value of $56,000 (assume transportation costs are negligible). What was the total value added by this firm to the economy (in terms of GDP) last year (in dollars)?

(A) 56,000
(B) 64,000
(C) 48,000

Answer 1

The correct answer is C: 48000

Step-by-step explanation:

The Expenditure Approach is a method of measuring GDP by calculating all spending throughout the economy including consumer consumption, investing, government spending, and net exports. This method calculates what a country produces, assuming that the finished goods and services of a country equals the amount spent in the country for that period.

The formula is:

GDP=C+I+G+/-NX

GDP: Gross Domestic Product

(C) consumer spending – this is the amount that all consumers spend on goods and services for personal use.

(I) investment – this is the amount that businesses or owners spend to invest in new equipment or expansions.

(G) government spending – this includes spending on new infrastructure like bridges and roads.

(NX) net exports – this includes spending on a country’s exports minus its spending on imports.

AddedGDP= 56000-8000

AddedGDP= 48000