Question

1. Consider the same economy introduced above. It produces 10 bags of wheat, valued at 25 per bag. Of these, 8 bags are converted into flour, which have a total final value of 400. Half of the flour is used to produce bread, the final value of which is 500. Assume that the 2 bags of wheat not used to produce bread are used as seeds (investment, I). The flour that is not used to produce bread is exported (X). In addition, the economy imports (M) other consumption goods (C) with a total value of 180 and other investment goods (I) with a total value of 90. All bread is consumed domestically during the year.
   1. Compute total investment (I):

2. Compute total consumption (C):

3. Compute total exports (X):

4. Compute total imports (M):

5. Using consumption, investment, exports and imports, compute GDP using the expenditure approach:

Answer 1

GDP (Gross domestic product is the sum total of final values of all gods and services produced in a country in a year.

Formula to calculate GDP by expenditure method is : C+I+G+(X-M)

Where, C= Consumption expenditure, I= Investment expenditure, G= Govt. expenditure, (X= Export and M=Import).

Total production is : 10 bags of wheat:

Final values:

Consumption: 500 (breads)

Investment: 50 (25 * 2 bags)

Export: 200 ( 50*2=200)

Import: 180+90=270

GDP= C+I+G+(X-M)

Hence, 500+50+200+(-270)

GDP=750-270= 480