Question

One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?a. GDP increases by $3.00.b. GDP increases by $5.00.c. GDP increases by $6.00.d. GDP increases by $7.00

Answer 1

The correct answer is option b.

Step-by-step explanation:

GDP is a measure of economic growth that shows the level of final goods and services produced in an economy in a year. It includes only final goods and services, intermediate goods are not included.

So here the value of flour used to make bread will not be included as it is an intermediate good. But the value of bread will be included. The value of the second bag of the floor will be included as it is a final good sold to the consumer.

Increase in GDP

= $3 + $2

= $5