Measuring GDP: In a given year, households bought £20m of ready meals from shops
ID: 1140243 • Letter: M
Question
Measuring GDP: In a given year, households bought £20m of ready meals from shops. The shops bought £10m of groceries from farms. The farms also sold £5m to households in Belgium. The wage bill of the farms and the shops were £1m and £2m, respectively. The farms paid taxes totalling £1m while the shops paid taxes totalling£2m. The farm paid rent of £2m to the households for the land. The shops bought new cleaning machines for £4m from Germany. The households received transfers from the government of £3m.
Calculate GDP, clearly showing your workings using all three methods.
Explanation / Answer
GDP by production method = Value of the final good sold - groceries bought from farm + groceries sold to households in Belgium = 20 - 10 + 5 = 15 million pounds
GDP by Income method = Wage bill of farms + wage bills of shops + taxes paid by farms + taxes paid by shops + Rent paid to households + Cleaning Machines bought + transfers from the govt. =
1 + 2 + 1 + 2 + 2+ 4 + 3 = 15 million pounds