Question

(please only answer this if you know how to do GDP Accounting, thank you).

1. Assume an economy with two firms. Firm A produces wheat and firm B produces bread. In a given year, firm A produces 50,000 bushels of wheat, sells 20,000 bushels of wheat to firm B at $3 per bushel, exports 25,000 bushels of wheat at $3 per bushel, and stores 5,000 bushels as inventory. Firm A pays $50,000 in wages to consumers. Firm B produces 50,000 loaves of bread, and sells all of it to domestic consumers at $2 per loaf. Firm B pays $20,000 in wages. In addition to the 50,000 loaves of bread consumers buy from firm B, consumers import and consume 15,000 loaves of bread, and they pay $1 per loaf for this imported bread. Calculate gross domestic product for the year using

1) the product approach:

Answer 1

The product approach calculates GDP as the sum of value added.

Firm A produces 50000 bushels at $3 each so total production = 50000x3 = 150000

Firm A sells to Firm B 20000 bushels at $3 each so 20000x3 = 60000

Firm B produces 50000 loaves of bread at $2 each so total production = 50000x2 = 100000

Firm B's input from Firm A = 60000

Value added by Firm B = 100000-60000 = 40000

GDP using product approach= value added by Firm A+value added by Firm B

= 150000+40000 = $190000