Question

Pete the Pizza Man produced $87,000 worth of pizzas in the past year. He paid $39,000 to employees, paid $11,000 for vegetables and other ingredients, and paid $5000 in taxes. He began the year with ingredient inventories valued at $1000, and ended the year with inventories valued at $2000. What was Pete's (and his employees') total contribution to GDP this year?

Answer 1

Answer:

$133,000

Explanation:

We can find Pete's total contribution to GDP by adding up the following numbers:

$87,000 worth of pizzas - because finished goods are part of GDP

$39,000 paid to employees - because wages are part of GDP

$5,000 paid in taxes - taxes are part of GDP because they are government revenue

$2,000 of inventories at the end of year - end-of-year inventories are included in GDP

Therefore: $87,000 + $39,000 + $5,000 + $2,000 = $133,000

the $11,000 worth of ingredients are not included in GDP because GDP only accounts for finished goods and services.