Suppose a U.S. farmer imports $1,000 seeds from Mexico and produces $2,500 of wheat. A food...
Suppose a U.S. farmer imports $1,000 seeds from Mexico and produces $2,500 of wheat. A food producer buys the wheat, makes flour out of it and sells it for $5,000 to households in his factory store. How much does U.S. GDP increase by?
Homework Answers
US GDP = Consumption spending - Imports = 5000 - 1000 =
$4,000
U.S. GDP increase by $4,000.
This is because imports are subtracted from GDP, and only final value of goods and services produced are included in GDP. So, we add $5000 to GDP, and subtract $1,000 from GDP.
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