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Imagine that I start a bar in Clemson. Each year I order $200,000 worth of food, beer and drink which is turned around and sold to customers. I also hire part-time staff, where the combined annual wages add up to $100,000. I also pay rent on my building which is $100,000 a year. Assume these are my only expenses. My bar is unusually successful and I generate $1,000,000 in revenue. How much does my bar contribute to GDP? (Hint: Think about using the national spending approach or the factor income approach. One is easier to use than the other)
a) $1,000,000
b) $1,300,000
c) $1,400,000
d) $1,200,000

Answer :

Answer:

The correct option is a) $1,000,000.

Explanation:

Under factor income approach contribution to gross domestic product (GDP) is calculated by adding up wages, rent, interest, and profit.

Using the factor factor income approach, contribution to GDP can be determined as follows:

Purchases = $200,000

Wages = $100,000

Rent on building = $100,000

Expenses = Wages + Rent on building = $100,000 + $100,000 = $200,000

Revenue = $1,000,000

Profit = Revenue - Purchases - Expenses = $1,000,000 - $200,000 - $200,000 = $600,000

Contribution to GDP = Wages + Rent on building + Profit = $200,000 + $200,000 + $600,000 = $1,000,000

This implies that your bar contributes $1,000,000 to GDP. Therefore, the correct option is a) $1,000,000.

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