One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

c.  GDP increases by $5.00.

Explanation:

Data given in the question

Sale value of one bag of flour = $1

Sale value to bake the bread = $3

And, the second bag of flour sale value = $2

So by considering the above information, the effect on GDP is

Increase in GDP is

= Sale value of one bag of flour + (Sale value to bake the bread - Sale value of one bag of flour) + the second bag of flour sale value

= $1 + ($3-$1) + $2

= $5

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