Refer to Table 19-9. Suppose that the above table represents the goods and services produced in a very simple economy in 2016. Assume that steel is used as an input in the production of autos. Using that information, calculate GDP for the year 2016

Question

What will be an ideal response?

Answer 1

First, we must decide which goods to include in the calculation of GDP. GDP is defined as the money value of final goods and services produced. Since steel is included in the production of autos, it is an intermediate good, not a final good. So steel should be excluded from the calculation. Final goods and services are goods and services consumed by the ultimate user of the good or service. All the other goods and services in the table are considered final goods.
Next, the money value of these final goods and services must be calculated. The money value is found by multiplying the price of the good or service times the quantity produced of that good or service. The total money value is found by summing up the individual money values. Thus GDP for 2016 = ($200 × 5,000 ) + ($25,000 × 500 ) + ($2,000 × 100 ) = $1,000,000 + $ 12,500,000 + 200,000 = $13,700,000.