Increase in GDP Through Value-Added Transactions

How do value-added transactions contribute to GDP growth?

What is the impact on GDP when a product goes through multiple stages of production and increases in value before reaching the final consumer?

Answer:

The Gross Domestic Product (GDP) increases by $1,700 in this situation, as GDP counts the final value of finished goods and services and doesn't consider intermediary transactions.

Explanation:

In this particular economic scenario, the Gross Domestic Product (GDP) increases by $1,700. GDP measures the final goods and services produced within a country in a certain period. Thus, only the final sale, which is the necklace's sale to the customer for $1,700, is considered in the calculation of GDP. This is due to the value-added approach in calculating GDP which adds up the market value of all final goods and services. The sales made in earlier stages of production (miner to company, company to jeweler, jeweler to department store) are not directly included in GDP as their value is already embodied in the final product's value.