Consider an economy that produces wood, boats, and has a marketing agency.

This year domestic wood production generates revenues of $80. Of this $80 worth of wood, $40 were

purchased by the boat producer and $40 were sold abroad to a foreign company. The wood

producer paid $40 worth of wages and $10 worth of taxes.

The boat producer combines the services of the marketing agency, the wood it purchased from the

wood producer, and $20 worth of labor (wages) to produce $120 worth of boats. Its revenues,

which include a boat produced in the previous year

and that was carried as inventory, are $130. Domestic families buy all these boats. This company pays $10 worth of taxes.

The marketing agency, whose sole client is the boat company, generates a revenue of $40 which

is enough to cover its labor costs of $40. This company pays no taxes.

The government in this economy uses the $20 worth of taxes and builds a port. The cost of the

port is $40that are paid to workers. This port

is partially financed by an international loan of $20.