Economics Part A

GDP Calculation Process

The shoe production process in Country C is as follows

There are two factories:

  1. A leather factory (intermediary goods) with 10 workers earning $80 each.

  2. A shoe factory (finished goods) with 10 workers earning $100 each.

Production costs in Country C are the same as in Country B. The following table summarizes Country C’s production.


GDP is calculated according to three methods:

  1. Total added value of each factory: $2,000 (leather factory: $1,000 + shoe factory: $1,000).

  2. Total revenue from finished goods, minus imports: $2,000 (total sales: $3,000, minus imports: $1,000).

  3. National income: $2,000 (total wages: $1,800 + profit: $200).

Exports

If Country A bakes 1,000 loaves of bread and exports 300 of them to a foreign country, then the value of the exported loaves of bread is still counted as part of Country A’s GDP. The significance of this point will become apparent later.

GDP Calculation Process 566GDP Calculation Process