Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 11

Table 7P-1 shows the price of inputs and the price of outputs at each step in the production process of making a shirt. Assume that each of these steps takes place within the country.
a. What is the total contribution of this shirt to GDP, using the standard expenditure method?
b. If we use a value-added method (i.e., summing the value added by producers at each step of the production process, equal to the price of inputs minus the price of outputs), what is the contribution of this shirt to GDP?
c. If we mistakenly added the price of both intermediate and final outputs without adjusting for value added, what would we find that this shirt contributes to GDP? By how much does this overestimate the true contribution?