Question

the wealthiest citizen imports a $50M yacht from France. The bread company sells $15M of bread: $5M goes to consumers and $10M goes to the restaurants. The farmers sell $10M of produce to the restaurant and $5M to consumers. The restaurants use the bread and produce into meals and sell it to consumers for $40M. What is the GDP of Econland?

Answer 1

We can use expenditure approach to answer this:

GDP = Personal Consumption expenditure + Gross domestic fixed capital formation(or Investment) + Government Spending + Exports - Imports

Here the wealthiest citizen imports a $50M => Imports = 50M

There is no economic activity related to Gross domestic fixed capital formation , Exports and Government spending and so Gross domestic fixed capital formation = 0 , Exports = 0 and Government spending = 0

What we left here is with Personal Consumption expenditure.

Personal Consumption expenditure = Consumption of domestic goods + Consumption of Foreign Goods

= Consumption of Yacht Imported + consumers consumption of bread + consumers consumption of farmers produce + consumers consumption of meal

=> Personal Consumption expenditure = 50M + 5M + 5M + 40M = 100M

Hence Using above details and formula we get :

GDP = Personal Consumption expenditure + Gross domestic fixed capital formation(or Investment) + Government Spending + Exports - Imports

=> GDP = 100M + 0+ 0 + 0 - 50M

=> GDP = 50M

Hence, the GDP of Econland = $50M