Question

Apple produces an iPhone in China that it sells in the United States. It uses $100bn...

Apple produces an iPhone in China that it sells in the United States. It uses $100bn (USD) in US made parts to produce the product, and assembles the iPhone completely in China for $50bn USD. It then sells this product to the consumer in the US for $325bn USD. How much did Apple contribute to US and Chinese GDP?

a. US: $375bn, China: $50bn

b. US: $325bn, China: $0bn

c. US: $275bn, China: $50bn

d. US: $175bn, China: $100bn

please give the explanation

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Answer #1

Apple produces the product using $100bn (USD). These goods will not be added in GDP of US as they are intermediary goods as it will lead to double counting if, added. The iPhone is being assembled in China by Apple for $50bn (USD) by using parts made in the US for $100bn (USD). Now Apple sells its product to the US for $325bn (USD). So, therefore apple contributes $325bn as final good to the US and, contributes same to their GDP and $50bn to Chinese GDP as it, was only assembled in China.

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