CFA Practice Question

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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?

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
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"
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