What is the change in GDP according to the *****income**** approach? How do the inputs that  make up Net Domestic Income (wages, interest, and profits) change?   I noticed that using the expenditure approach the GDP DECREASED by 800 dollars. My income approach is not working out.

Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter7: Consumer Choice And Elasticity
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What is the change in GDP according to the *****income**** approach? How do the inputs that 
make up Net Domestic Income (wages, interest, and profits) change?

 

I noticed that using the expenditure approach the GDP DECREASED by 800 dollars. My income approach is not working out. 

Suppose that the Government in this economy instead decided to import the same quantity of
widgets from abroad and stopped buying widgets from Firm 2. In this case, the 10% of widgets
that Firm 2 was going to sell to the Government is instead kept as inventories for next year.
Transcribed Image Text:Suppose that the Government in this economy instead decided to import the same quantity of widgets from abroad and stopped buying widgets from Firm 2. In this case, the 10% of widgets that Firm 2 was going to sell to the Government is instead kept as inventories for next year.
Firm 1 produces tires and sells $5,000 of its tires to Firm 2. Firm 1's costs include $3,000 to its
workers, $500 as payments of interest on its outstanding debt, and $1,000 on rent for the
property it uses. The owners keep the remaining revenues as profits.
Firms 2 buys the tires and turns them into a final good called widgets. Firm 2 buys $5,000 of
tires, creates these widgets, and produces $8,000 worth of widgets. 75% of these widgets are
sold to domestic consumers, and 10% of the widgets are sold to the local Government. Firm 2
then keeps the last 15% of the widgets. It keeps these 15% of the widgets to be sold in the
widget market next year.
Firm 2 spends $5,000 on tires as an input to production, pays $400 to its staff, pays $500 in
building rent, pays $300 to rent some machines it needs to use and does not own, and pays the
rest of its revenues to the owner of the firm as profits.
Transcribed Image Text:Firm 1 produces tires and sells $5,000 of its tires to Firm 2. Firm 1's costs include $3,000 to its workers, $500 as payments of interest on its outstanding debt, and $1,000 on rent for the property it uses. The owners keep the remaining revenues as profits. Firms 2 buys the tires and turns them into a final good called widgets. Firm 2 buys $5,000 of tires, creates these widgets, and produces $8,000 worth of widgets. 75% of these widgets are sold to domestic consumers, and 10% of the widgets are sold to the local Government. Firm 2 then keeps the last 15% of the widgets. It keeps these 15% of the widgets to be sold in the widget market next year. Firm 2 spends $5,000 on tires as an input to production, pays $400 to its staff, pays $500 in building rent, pays $300 to rent some machines it needs to use and does not own, and pays the rest of its revenues to the owner of the firm as profits.
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