One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?
A) GDP increases by $1.50.
B) GDP increases by $3.50.
C) GDP increases by $6.00.
D) GDP increases by $7.50.

Question

Quizplus · Accepted Answer

The GDP increases by $6.00 because the bread sold to consumers for $4.00 and the flour sold directly to a consumer for $2.00 are both final goods. The flour sold to the bakery is an intermediate good and does not count separately in GDP.

One Bag of Flour Is Sold for $1