Firm A produces desks. It is situated in the US but imports wood from Brazil. Last year it imported $8,000 in lumber and sold 100% of its production for a total value of $56,000 (assume transportation costs are negligible). What was the total value added by this firm to the economy (in terms of GDP) last year (in dollars) ?

(A) 56,000

(B) 64,000

(C) 48,000

The correct answer is C: 48000

Explanation:

The Expenditure Approach is a method of measuring GDP by calculating all spending throughout the economy including consumer consumption, investing, government spending, and net exports. This method calculates what a country produces, assuming that the finished goods and services of a country equals the amount spent in the country for that period.

The formula is:

GDP=C+I+G+/-NX

GDP: Gross Domestic Product

(C) consumer spending - this is the amount that all consumers spend on goods and services for personal use.

(I) investment - this is the amount that businesses or owners spend to invest in new equipment or expansions.

(G) government spending - this includes spending on new infrastructure like bridges and roads.

(NX) net exports - this includes spending on a country's exports minus its spending on imports.

AddedGDP = 56000-8000

AddedGDP = 48000