A firm purchases $400,000 worth of raw materials and pays wages and salaries of $300,000 and dividends of $100,000. If the firm sells its output for $1 million, the firm's value added to GDP is

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Quizplus · Accepted Answer

Value added to GDP is calculated by subtracting the value of inputs (raw materials, wages, etc.) from the value of output. In this case, the firm's value added is $1 million (output) - $400,000 (raw materials) - $300,000 (wages) - $100,000 (dividends) = $200,000. Therefore, the firm's value added to GDP is $600,000 ($200,000 + $400,000 of raw materials).

A Firm Purchases $400,000 Worth of Raw Materials and Pays