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6 May, 21:13

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to GDP?

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  1. 7 May, 00:29
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    The answer is $1,500,000

    Explanation:

    There are three methods of calculating GDP (total market value of all the goods and services produced within a country during a given period of time usually a year):

    1. Income approach

    2. Expenditure approach

    3. Value added approach.

    In the question above, the method used is a value added approach.

    Value added approach is adding all the value added during the production and distribution.

    In this question, Birmingham Steel sells sold to Winston Golf Club manufacturer for $300,000. We first consider this amount. The Birmingham Steel is a raw material.

    Winston sold what he bought for $300,000 to Academy Sports for $1,000,000 (The value added here is $1,000,000 - $300,000 = $700,000)

    And Academy Sports sold what he bought for $1,000,000 to Winston golf clubs for $1,500,000 (The value added here is $1,500,000 - $1,000,000 = $500,000).

    Therefore, the total amount added to GDP is $300,000 + $700,000 + $500,000 = $1,500,000
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Home » Business » Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to GDP?
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