Question

Assume an economy where there are two producers: a steel producer and a car producer. In a given year, 250 tons of steel are produced, of which 200 tons are sold to the car industry maker at $100 per ton, 25 tons are sold to Canada nad 20 are stored. The car maker sells 1000 cars to households at $1000 each. Compute GDP in this economy using the expenditure approach.

Answer 1

As 200 tons of steel is sold to the car producer it will be considered as an intermediate good and will not be calculated in GDP but will form part of car sale.

Of all the steel sold, the amount of Steel sold to Canada will form part of GDP (price at which the steel is sold to Canada is not given so we assume its the same as $100 per ton.)

As per expenditure method, Total GDP will be

Steel sold to Canada = 25 x $100 = $25,000

Cars sold in the economy = 1000 x $1000 = $10,00,000

Total GDP = $10,00,000 + $25,000

= $10,25,000

Total GDP as per the expenditure method is $10,25,000.