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26 May 2019

The table below shows the price of inputs and the price of outputs at each step in the production process of making a shirt. Assume that each of these steps takes place within the country.

Cotton farmer Fabric maker Sewing and printing
Inputs $0 $1.10 $3.50
Value of output $1.10 $3.50 $18.00

a. Using the standard expenditure method, the total contribution of this shirt to GDP is $_____.

b. If we use a value-added method (i.e., summing the value-added by producers at each step of the production process, equal to the price of inputs minus the price of outputs), the contribution of this shirt to GDP is $_____.

c. If we mistakenly added the price of both intermediate and final outputs without adjusting for value-added, we would find that this shirt contributes $_____ to GDP and this overestimates the true contribution by $_____.

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Patrina Schowalter
Patrina SchowalterLv2
27 May 2019

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