Question

Answer this question on the basis of the given information for an economy in 2016.

Dollar value of resource extraction activity = $20 billion
Dollar value of production activity = $50 billion
Dollar value of distribution activity = $80 billion
Dollar value of final output = $110 billion
Suppose that in 2017, the dollar value of distribution activity fell to $70 billion, but the other values remained the same. Based on this, we could conclude that from 2016 to 2017,
A. neither GO nor GDP were affected by the change in distribution activity.
B. GO fell by $10 billion, while GDP was unchanged.
C. GDP fell by $10 billion, while GO was unchanged.
D. GO and GDP both fell by $10 billion.

Answer 1

Answer: B. GO fell by $10 billion, while GDP was unchanged.

Explanation;

Gross Output is different from GDP in that where GDP only takes into account the dollar value of the final output so as to avoid double counting, the Gross Output takes into account those intermediate expenses and consumption that were used to create the final goods and services.

As such, if the dollar value of distribution activity fell to $70 billion then the Gross Ouput would also have to fall by the equivalent amount which in this case would be $10 million.

As all other values did not change, then neither did the dollar value of final output meaning that GDP did not change.