Question

Last year, a small nation with abundant forests cut down $200 worth of trees. It then turned $100 worth of trees into $150 worth of lumber. It used $100 worth of that lumber to produce $250 worth of bookshelves. Assuming the country produces no other outputs, and there are no other inputs used in producing trees, lumber, and bookshelves, what is this nation's GDP? In other words, what is the value of the final goods the nation produced including trees, lumber and bookshelves?

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Answer 1

A small nation with abundant forests cut down $200 worth of trees. It then turned $100 worth of trees into $150 worth of lumber. This means Out of $200 worth of trees, $100 is consumed as final good and $100 is used to make $150 worth of Lumber. So, $100 worth of trees is consumed as final good and $100 worth of trees is used as intermediate goods(which are not included in the GDP). Among $150 worth of lumber , It used $100 worth of that lumber to produce $250 worth of bookshelves.

So, This means Out of $100 worth of trees, $50 is consumed as final good and $100 is used to make $250 worth of Bookshelves. So, $50 of Lumber is consumed as final good and $100 is used as intermediate goods.

Finally we have $250 worth of bookshelves which is used as Final Good.

=> Value of Final Goods = 100 + 50 + 250 = 400

So, the value of the final goods the nation produced including trees, lumber and bookshelves = $400

Hence GDP = $400