Question

Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is: a. $20,900. b. $20,000. c. $20,900 less the profits of all three companies on the items that they sold. d. $20,000 less the automobile company's profit on the car.

Answer 1

The correct option is B,$20,000.

Step-by-step explanation:

Using an output approach to computing the value of Gross Domestic Product(GDP),inputs of tires and compact disc player should not be counted as they form part of the finished output,the car,hence option A is an obviously wrong answer.

Again,we are considering the value of GDP based on the amounts of final products produced in the economy,then issue of deducting profits does not arise,thereby rendering options C and D as invalid answers as well.