The Impact of Gold Sales on GDP
How a Gold Sale Affects GDP
Suppose a gold miner finds a gold nugget and sells the nugget to a mining company for $600. The mining company melts down the gold, purifies it, and sells it to a jewelry maker for $1200. The jewelry maker fashions the gold into a necklace that it sells to a department store for $1800. Finally, the department store sells the necklace to a customer for $2400.
Answer: GDP rises by $2,400
Explanation: GDP refers to the market value of all final goods and services produced within the domestic territory of a country during a given period of time. It can be calculated using the value-added method, expenditure method, or the income method.
Value-added method
GDP = Value added by the Gold miner + Mining company + Jeweler + Departmental store
= $600 + $600 + $600 + $600
= $2,400
Expenditure method
GDP= Value of the final necklace purchased by the customer
= $2400
Therefore, GDP rises by $2,400.
How does the sale of the gold nugget impact each step of the value chain in terms of GDP contribution? The sale of the gold nugget impacts each step of the value chain in terms of GDP contribution by adding value at each stage. The gold miner's sale to the mining company contributes $600 to GDP. The mining company's processing adds another $600, bringing the total value to $1200. The jewelry maker further adds value by turning the purified gold into a necklace and selling it for $1800, and finally, the department store selling the necklace to a customer for $2400 adds another $600 to GDP. Therefore, each step in the value chain contributes to the overall GDP growth of $2400.