Question

# (please only answer this if you know how to do GDP Accounting, thank you). 1. Assume...

(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:

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

#### Earn Coins

Coins can be redeemed for fabulous gifts.