You own a factory that makes wasabi peas. Last month, you purchased $560,000 worth of wasabi paste, peas, cane sugar, palm oil and sea salt. Using these inputs, you made and sold 1 million snack bags of wasabi peas at $3.49 each. How much did GDP change?
A)GDP rises by $2,930,000.
B)GDP rises by $560,000.
C)GDP rises by $3,490,000.
D)GDP rises by $4,050,000.

Question

Quizplus · Accepted Answer

GDP = C + I + G + NX (where C = household consumption, I = business investment, G = government spending, and NX = net exports). In this scenario, we are only concerned with the business investment component, which includes the production of goods and services. The factory's production of 1 million snack bags of wasabi peas at $3.49 each generates a revenue of $3,490,000 (1 million x $3.49). The cost of the inputs is included in this revenue, so the value added to GDP is the revenue minus the cost of the inputs, which is $3,490,000 - $560,000 = $2,930,000. Therefore, the correct answer is C, GDP rises by $3,490,000.

You Own a Factory That Makes Wasabi Peas