Question

Explain how buying a shirt contributes to the GDP. Relate it to all four parts of the definition of GDP: dollar value, final goods and services, produced within a country’s borders, and in a given year.

Answer 1

Answer:

Buying a shirt contributes both in the production side of GDP, and in the consumption side of GDP.

Explanation:

In the production side, the shirt becomes part of GDP when it is sold, and only its final value is accounted for, because intermediate costs like the costs of raw materials are not included since otherwise we would be making double accounting. The final value of the shirt becomes the producer's income.

In the consumption side, the consumer contributes to GDP for the amount of the final value of the shirt. The final value of the shirt becomes then, the amount of money spent by the consumer.