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Problem 2: Calculating GDP [9 Points] Consider the following mini-economy composed of just three firms, with Firm 1 and Firm 2 producing intermediate goods, and
Problem 2: Calculating GDP [9 Points] Consider the following mini-economy composed of just three firms, with Firm 1 and Firm 2 producing intermediate goods, and nally Firm 3 producing a nal good called \"widgets\". Firm 1 mines are out of the ground and sells $1,000 of its ore to Firm 2. It pays $600 of these revenues out to workers in wages and an additional $300 of these revenues as interest payments on debt, and nally the last $100 to buy nal widgets to repair old machinery. Firms 2 smelts the metal it receives from Firm 1 into steel. Firm 2 sells its steel for $4,000 to Firm 3. Out of these revenues, $1,000 is spent on are as an input into production, $2,000 is paid out to workers, $500 is paid out to the machine owners, and $500 is paid to the owner as prots. Firms 3 takes the steel and turns them into a nal good called widgets, which can be used for anything (they are magic). Firm 3 buys $4,000 of steel, creates these widgets, and sells 80% of them for $8,000. $7,900 of these are sold to end consumers, and $100 is sold to Firm 1 for its machinery repairs. Firm 3 then keeps the last 20% of the widgets. It keeps half of these to increase its inventories of widgets. It uses the other half of these widgets to replace any machines that have worn out. Firm 3 spends $4,000 on steel as an input to production, pays $1,000 to its retail staff and metal-workers, pays $1,000 in building rent, pays $500 to rent some machines it needs to use and does not own, and pays $1,500 to the owner of the firm as prots. Assume that there is no trade and no government in this economy. 8. Calculate GDP for this mini-economy using the value-added approach. What is the contribution of each firm to this total GDP? [3 points] 9. 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? [3 points] 10. 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? [3 points]
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