Question

Suppose a gold miner finds a gold nugget and sells the nugget to a mining company for $600. The mining company melts down the gold, purifies it, and sells it to a jewelry maker for $1,000. The jewelry maker fashions the gold into a necklace that it sells to a department store for $1,600. Finally, the department store sells the necklace to a customer for $2,200.

Required:

How much has GDP increased as a result of these transactions?

Answer 1

GDP grew by $2,200

Step-by-step explanation:

Gross domestic product (GDP) which is the total market value of all the final goods and services produced in a country over a given period of time. The GDP can be calculated using the value added approach.

Here the GPD figure is ascertained by summing the amount of additional value created by each factor of production at each stage of the production process of the final product.

Only the values added are summed, the cost of the inputs or intermediate goods are not included

In this question, the final value of $2200 represents the amount by which the GDP has increased in the period. This also can be verified using the value-added approach as follows

Value added($)

Gold miner - 600

Mining company : 1000 -600 = 400

Jewerlry maker :1600 - 1000 = 600

Departmental store :2200 -1600 = 600

Total value added 2,200