Question

Consider the following scenario:

•        American Ore, Inc. extracts $4,200 worth of iron ore every year and sells it to American Steel, Inc.

•        American Steel takes the iron ore makes steel, which is sold to Korean Cars for $9000.

•        Korean Cars, owned by Korean citizens, hires American employees and rents land in Korea to U.S. citizens (who own the land) for their auto factory. The cars produced at that factory are sold in the U.S. for $21,500.

What is the contribution of the above to U.S. GDP?

Answer 1

The final value of steel exported to the Korean cars = $9000

Value of cars produced in Korea and imported in the USA for sale = $21500

So,

Net contribution to the US GDP = export - import = 9000-21500

Net contribution to the US GDP = -$12500