Question

Use the information on the following transactions for a country named Neverland: i. Local coffee shop: • Purchased coffee beans to produce coffee from a foreign company for $2,000. • Paid wages to local workers for $6,000. • Sold $8,000 worth of coffee to foreign consumers. • Bought a new expresso machine for $3,000 from a foreign company. ii. Local textile company. • Bought $1,000 worth of wool from a domestic company. • Bought $1,000 worth of wool from a foreign company. • Paid $5,000 in wages to domestic workers. • Paid $1,000 in wages to foreign workers for part-time jobs in Neverland. • Sold $4,000 cloths to domestic consumers and $6,000 to foreigners. iii. Local company producing wool. • Paid $1,000 for wages to domestic workers. • Sold $1,000 worth of wool to the domestic textile company. iv. Government. • Raised $2,000 from residents in Neverland in taxes. • Hired one domestic worker to produce public services at a cost of $500. What is the value of GDP in Neverland? (a) 18,000 (b) 12,500 (c) 15,500 (d) 15,000

Answer 1

Answer:

(b) 12,500

Explanation:

GDP: expenditures approach:

eXports: 8,000 coffee + 6,000 cloth = 14000

iMports: 2,000 coffe beans + 3,000 expresso + 1,000 whool = 6,000

Net eXport: 14,000 - 6,000 =  8000

Consumption:  4000 clothes

Goverment spending: 500

Total   =  12500

The whool industry did not sale to consumer it sale to the cloth industry and the GDP works with the sum of all finished (final) goods and services not intermediate else, these would be counted twice, once for the whool industry and again when we count the revenue of the cloth industry.