1. Suppose an economy has only two sectors, Goods and Ser- vices. Each year, Goods sells 80% of its output to Services and keeps the rest, while Services sells 70% of its output to Goods and retains the rest. Find equilibrium prices for the annual outputs of the Goods and Services sectors that make each sector's income match its expenditures.
1. Suppose an economy has only two sectors, Goods and Ser- vices. Each year, Goods sells 80% of its output to Services and keeps the rest, while Services sells 70% of its output to Goods and retains the rest. Find equilibrium prices for the annual outputs of the Goods and Services sectors that make each sector's income match its expenditures.
Chapter1: Making Economics Decisions
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Transcribed Image Text:1.6 EXERCISES
1. Suppose an economy has only two sectors, Goods and Ser-
vices. Each year, Goods sells 80% of its output to Services
and keeps the rest, while Services sells 70% of its output to
Goods and retains the rest. Find equilibrium prices for the
annual outputs of the Goods and Services sectors that make
each sector's income match its expenditures.
.2
Goods
.8
-.7
Services
.3
2. Find another set of equilibrium prices for the economy in
Example 1. Suppose the same economy used Japanese yen
instead of dollars to measure the value of the various sec-
tors' outputs. Would this change the problem in any way?
Discuss.
3. Consider an economy with three sectors, Chemicals & Met-
als, Fuels & Power, and Machinery. Chemicals sells 30% of
output to Fuels and 50% to Machinery and retains the
output to Chemicals and 10%
its
6.
7.
8.
Expert Solution
Step 1
Gross domestic product (GDP) is the standard computation of the value added created through the production of products and services in a country during some period. As such, it also computes the income earned from that production or the total amount spent on final products and services (minus imports).
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