Problem 3: Different GDP Techniques Consider the following mini-economy composed of two firms (Firm 1 and Firm 2). Firm 1 is a farm and grows $4,000 of Wheat. Firm 1 keeps $1,000 of wheat in a silo to sell next year. Firm 1 then sells its remaining $3,000 of wheat directly to Firm 2. Firm 1 uses the $3,000 it receives from Firm 2 to pay $2,000 to its workers, $200 on interest payments in outstanding debts, and $800 in taxes. Firm 2 is a bakery and uses the $3,000 of wheat that it purchases to bake bread and sell it. Firm 2 produces $7,000 of bread, selling $2,000 to the Government and selling $5,000 to private consumers. Firm 2 pays its workers $1,000, pays $1,000 in taxes, and the owner keeps the rest of the money remaining as profits. 13. Calculate GDP for this mini-economy using the value-added approach. What is the contribution of each firm to this total GDP? 14. Calculate GDP for this mini-economy using the expenditure approach. What is the contribution of each firm to this total GDP and what is the contribution of each of the four inputs to GDP under the expenditure approach in this example? 15. Calculate GDP for this mini-economy using the income approach. What is the contribution of Net Domestic Income and Non-Factor Payments to this total GDP?
Problem 3: Different GDP Techniques Consider the following mini-economy composed of two firms (Firm 1 and Firm 2). Firm 1 is a farm and grows $4,000 of Wheat. Firm 1 keeps $1,000 of wheat in a silo to sell next year. Firm 1 then sells its remaining $3,000 of wheat directly to Firm 2. Firm 1 uses the $3,000 it receives from Firm 2 to pay $2,000 to its workers, $200 on interest payments in outstanding debts, and $800 in taxes. Firm 2 is a bakery and uses the $3,000 of wheat that it purchases to bake bread and sell it. Firm 2 produces $7,000 of bread, selling $2,000 to the Government and selling $5,000 to private consumers. Firm 2 pays its workers $1,000, pays $1,000 in taxes, and the owner keeps the rest of the money remaining as profits. 13. Calculate GDP for this mini-economy using the value-added approach. What is the contribution of each firm to this total GDP? 14. Calculate GDP for this mini-economy using the expenditure approach. What is the contribution of each firm to this total GDP and what is the contribution of each of the four inputs to GDP under the expenditure approach in this example? 15. Calculate GDP for this mini-economy using the income approach. What is the contribution of Net Domestic Income and Non-Factor Payments to this total GDP?
Chapter1: Making Economics Decisions
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Transcribed Image Text:Problem 3: Different GDP Techniques
Consider the following mini-economy composed of two firms (Firm 1 and Firm 2).
Firm 1 is a farm and grows $4,000 of Wheat. Firm 1 keeps $1,000 of wheat in a silo to sell next
year. Firm 1 then sells its remaining $3,000 of wheat directly to Firm 2. Firm 1 uses the $3,000 it
receives from Firm 2 to pay $2,000 to its workers, $200 on interest payments in outstanding
debts, and $800 in taxes.
Firm 2 is a bakery and uses the $3,000 of wheat that it purchases to bake bread and sell it. Firm
2 produces $7,000 of bread, selling $2,000 to the Government and selling $5,000 to private
consumers. Firm 2 pays its workers $1,000, pays $1,000 in taxes, and the owner keeps the rest
of the money remaining as profits.
13. Calculate GDP for this mini-economy using the value-added approach. What is the
contribution of each firm to this total GDP?
14. Calculate GDP for this mini-economy using the expenditure approach. What is the
contribution of each firm to this total GDP and what is the contribution of each of the
four inputs to GDP under the expenditure approach in this example?
15. Calculate GDP for this mini-economy using the income approach. What is the
contribution of Net Domestic Income and Non-Factor Payments to this total GDP?
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