Question

A farmer grows wheat, which he sells to a miller for $100. The miller turns the wheat into flour, which he sells to a baker for $150. The baker turns the wheat into bread, which he sells to consumers for $180. Consumers eat the bread. What is nominal GDP in this economy

Answer 1

Nominal GDP is $180

Step-by-step explanation:

Recall that GDP is the total amount of the FINAL MARKET VALUE of goods and services produced within the geographical boundary of a country. Thus, only the price of the final good which is consumed by the consumers is added to the GDP. In this case, the initial sales from the farmer to Miller and Miller to Baker is not accounted for in the GDP as it was not the final value of the commodity. The final value of the commodity only came in when the Baker turned it into bread and sold it to a consumer for $180.