Question

Using the following information, calculate the GDP using the expenditure approach. A particular economy has a coal producer, steel producer, and several consumers. There is no government. During the year, the coal producer manufactures 15 million tons of coal, and sells it for $5 per ton. The coal producer pays $50 million in wages to consumers. The steel producer uses 25 million tons of coal as an input into steel production, all purchased for $5 per ton. Of this 25 million tons of coal, 15 million tons comes from the local coal producer, while the other 10 million comes are imported. The steel producer manufactures 10 million tons of steel, and sells it for $20 per ton. Domestic consumers buy 8 million tons of steel, and 2 million are exported. The steel producer pays consumers $40 million in wages. Enter your

Answer 1

The objective of the following analysis is to compute GDP using Expenditure method:

Under expenditure approach, the various components of GDP are:

(1) Private final consumption expenditure:

It is given that consumers purchase 8 million tons of steel at the rate of $20 per ton

That means, the value of private final consumption expenditure is $160 million

(2) Investment Expenditure : It is zero as no information is provided

(3) Government final consumption expenditure: It is also zero as no information is provided

(4) Exports:

It is given that 2 million tons of steel is exported at the rate of $ 20 per ton. That means , the value of exports is $40 million

(5) Imports

It is given that 10 million ton of steel is imported at the rate of $5 per ton. That means, the value of imports is $50 million

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Thus, GDP = Private Final Consumption Expenditure + Investment Expenditure + Government final consumption expenditure + Exports - Imports

GDP = $160 million + 0 + 0 + $ 40 million - $ 50 million

GDP = $ 150 million

Hence, GDP as estimated using expenditure method is $ 150 million