Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barn by's store to be sold later. What is GDP here?

a. $40
b. $60
c. $80
d. $100

c. $80

Explanation:

GDP is the value in money of all finished goods and services within a country. It shows how good a country's economy is and provides a good estimate of the growth rate of the country.

The wool that Angus sells to the farmer is not part of the GDP since it is not a finished goods but an intermediate goods. Even though one sweater is sold, to calculate the GDP we use the value of two sweaters since two sweaters were produced.

GDP = 2 × $40 = $80

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