Consider a firm whose final output (and sales) in a particular year has a value of $1,200
To produce these goods, the firm used $500 worth of intermediate goods it had purchased in previous years plus $200 worth of newly-purchased intermediate goods. In the subsequent year, this same firm again sells $1,200 worth of final goods, but in this year has purchased $700 worth of intermediate goods, of which $100 is not used in current production but, rather, added to the firm's inventory. For each of these two years, calculate the value added by this firm. For each of these two years, calculate the contribution of this firm to the economy's GDP.
Value added in year one equals $1,200 final goods minus $200 purchased intermediates equals $1,000. Value added in year two equals $1,200 final goods minus $700 purchased intermediates equals $500. Contribution to GDP in year one equals $1,000 value added minus $500 decrease in inventory equals $500. Contribution to GDP in year two equals $500 value added plus $100 inventory increase equals $600.
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