Final answer:
The GDP of a nation includes only the value of final goods and services. In the example, the nation's GDP is $250, the value of the bookshelves. For Country A, the GDP is calculated as $3,030 billion.
Step-by-step explanation:
To calculate the Gross Domestic Product (GDP) of a nation, we need to consider the value of the final goods and services produced. For the steel and bicycle company example, only the value of the final good, which is the bicycle sold at $250, is included in the GDP. Intermediate goods like the steel sold to the bicycle company do not count towards GDP as their value is already included within the value of the final good.
For the scenario of the small nation with abundant forests, the calculation of GDP would include only the value of the final goods produced. That is the $250 worth of bookshelves (final product), not the intermediate values of trees and lumber. Since the trees and lumber were intermediate goods used to produce the final good (bookshelves), their value is embedded in the final product's value. Thus, this nation's GDP from these activities is $250.
The same principle applies to Country A's GDP calculation. To get the dollar value of GDP, we add government purchases, business investment, exports, and consumption spending and then subtract the value of imports from this total:
- Government purchases: $1,000 billion
- Business investment: $50 billion
- Exports: $20 billion
- Consumption: $2,000 billion
- Imports (subtracted): $40 billion
Using the formula GDP = Consumption + Investment + Government Spending + (Exports - Imports):
GDP = $2,000B + $50B + $1,000B + ($20B - $40B) = $3,030B
Hence, Country A's GDP is $3,030 billion.