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?

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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