Suppose we are estimating the change in GDP and NNW from the timber industry in a small town. In the reference year (this year), landholders cleared forested land and sold the timber for total revenue of $200,000. The landholders spent in total $50,000 in costs to extract the timber. Landholders invested half of their profits into photovoltaic panels for solar energy production and spent the rest on private consumption. Suppose the forest provided carbon sequestration services valued at $10,000 in that year. Suppose that the change in GDP due to the clearing and selling of the trees is equal to the profits that the landholders earned. And to answer this question, ignore future benefits and costs and focus just on accounting for the change in forest cover in the reference year.

Q3-A Within a net national wealth framework, we also factor in the depreciation rate of the natural capital (the forest stock). What is the depreciation rate? ANSWER: Q3-B The net national wealth framework also includes externalities. What is the value of the negative externalities that we would enter into the NNW equation? ANSWER: Q3-C Given your answers to Q3-A and Q3-B, what would be the change in NNW associated with the selling of the timber? Hint: see the NNW equation provided in G&P on p. 180