Q1.An economy has the following sectors: private households, government, flour producers andbread producers. The government levies a value added tax (VAT) on both flour and bread of10%. In 2010 flour producers pay their workers $200 and sell 300 kilos of flour to the breadmakers and 240 kilos of flour to final consumers. The net price for one kilo of flour is $0.5.The bread producers pay their workers $220 and sell 175 kilo bread to domestic consumers.Moreover, 75 kilos of bread are exported (the VAT levied by the government also applies toexported goods). The net price for one kilo of bread is $2.(a) Describe briefly the three possibilities to calculate GDP.(b) What is the GDP of this economy using the three possibilities? Are your answers thesame for the three possibilities? If Yes, Explain.(c) Calculate the shares of GDP attributable to labor income, capital income and indirecttaxes.

(a) Production (Value-Added) Approach:This method sums the value added at each stage of production.…

Answered: Q1. An economy has the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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