Question

Suppose a Farmer produces wheat and sells it for $2,000 to flour Mill. Flour Mill converts it flour and sells it for $2,500 to Bakery. Bakery produces daily bread and sells to restaurant for $3500. Restaurant sells to consumers for $4,000. Calculate total GDP?

Answer 1

To calculate the value of the total GDP only final value should be taken into account.

The reason is to avoid double-counting. So there are two methods to calculate total GDP

1) Final Output

2) Value Added

Final Output

According to this method, the value of final good should be calculated in total GDP

In this case, the value of final good is $4000 (Restaurant sells to consumers)

Value Added

According to this method, sum total of value added by each producer should be calculated in total GDP

Total GDP = 2000 + (2500-2000) + (3500-2500) + (4000-3500)

Total GDP = 2000 + 500 + 1000 + 500

Total GDP = $4000