Question

Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes’ Mill and uses the flour to make bread. Wholesome Wheat sells the bread to the public for $22.00. Taking these two transactions into account, what is the effect on GDP?
a. GDP increases by $10.00.

b. GDP increases by $12.00.

c. GDP increases by $22.00.

d. GDP increases by $32.00.

Answer 1

Answer:

c. GDP increases by $22.00.

Explanation:

The GDP is the sum of all final goods and services produced in an economy within a given period.

GDP = Consumption spending + Investment + Government Spending + Net Export

Only final goods and services are included in the calculation of GDP.

The wheat purchased by Wholesome Wheat Bakery is an intermediate good whuch is still used in the production of bread. Therefore, it isn't included in the calculation of GDP.

Bread is a final good and it's included in the GDP. Therefore, GDP increases by $22.

I hope my answer helps you.