One bag of flour is sold for $1.00 to a bakery,which uses the flour to bake two loaves of bread that are sold for $3.00 each to consumers.A second bag of flour is sold for $1.00 to a grocery store,which sells it to a consumer for $2.00.Taking these transactions into account,what is the effect on GDP?
A) GDP increases by $5.00.
B) GDP increases by $7.00.
C) GDP increases by $8.00.
D) GDP increases by $9.00.

Question

Quizplus · Accepted Answer

GDP increases by $7.00 because the final goods sold to consumers are two loaves of bread for $6.00 and one bag of flour for $2.00, totaling $8.00. The $1.00 for the flour sold to the bakery is not counted as it is an intermediate good.

One Bag of Flour Is Sold for $1