- CFA Exams
- 2021 CFA Level I Exam
- Study Session 4. Economics (1)
- Reading 14. Aggregate Output, Prices, and Economic Growth
- Subject 1. Gross Domestic Product
CFA Practice Question
Call-Mart Inc. bought 1000 fur coats from a wholesaler in 2011, at $200 each. Its retail price for the fur coat was $300. During 2011, it sold 700 fur coats at its retail price, leaving 300 in its warehouse. Under the expenditure approach, how much should be added to GDP?
B. $210,000 (700 x $300). The 300 coats should be counted as intermediate goods and not included in the GDP of the year unless they were sold.
C. $200,000 (1000 x $200). Retail profits should not be counted in GDP.
A. $300,000 (1000 x $300). Total expected sales revenue of Call-Mart (since 700 were sold and 300 were ready to go).
B. $210,000 (700 x $300). The 300 coats should be counted as intermediate goods and not included in the GDP of the year unless they were sold.
C. $200,000 (1000 x $200). Retail profits should not be counted in GDP.
Correct Answer: A
User Contributed Comments 6
User | Comment |
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cbb1 | GDP is based on market value of all final goods and services; thus expected sales price is used. |
Staf | Disagree - as the 700 coats sold are personal consumption, and the purchase of the remainding 300 coats are investment in inventory, which should be recorded at their cost price. |
froglee | You are mixing personal consumption and "personal consumption expenditure". Beside, the call-mart sales has nothing to do with personal consumtion expenditure. The 300000 is Gross Private Domestic Investment because it bought 1000 units for 300 each. $700 sales part is NOT count in the expenditure approach because it is a income not a expendtiture. Kind of tricky |
Pinpan | GDP measures the market value of final goods produced, the market value of the 1000 coats produced is 300 -> 300 x 1000 = 300,000 |
geofin | GDP measures the value of final goods sold and the value of inventories separately. However, since inventories are valued at average market prices, the correct answer is still A. |
chesschh | GDP under expenditure approach measures "expenditures spent on all final goods and services produced during the year" EXPENDITURE APPROACH-----> WHAT IS SPENT |