In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company’s inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014?

$8 million

Explanation:

Value added by a farmer to the production of corn = $3 million

Total value added by the Big flakes cereal company:

= Total production of corn - Total amount of corn purchased from a farmer

= $8 million - $3 million

= $5 million

GDP refers to the amount of output produced in a country with a given period of time.

Therefore, the GDP of this country in 2014 is calculated as follows:

= Value added by a farmer to the production of corn + Total value added by the Big flakes cereal company

= $3 million + $5 million

= $8 million

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