suppose that furniture production encompasses the following stages: stage 1: tre

ID: 1155597 • Letter: S

Question

suppose that furniture production encompasses the following stages:

stage 1: trees are sold to lumber company $1,000

stage 2: lumber is sold to furniture company $2,500

stage 3: furniture company sells furniture to retail store
$6,000

stage 4: furniture store sells furniture to consumer
$12,000

a) what is the value added at each stage?

b) how much does this output contribute to GDP?

c) how would answer (b) change if the lumber was imported from Canada?

2) if all prices were to double overnight what would be the change in real GDP and nominal GDP?

1) a) Value added at stage 1: $1000

Value added at stage 2 : $2500 - $1000 = $1500

Value added at stage 3: $6000 - $2500 = $3500

Value added at stage 4: $12000 - $6000 = $6000

b) The output contributes $1000 + $1500 + $3500 + 6000 = $12000 to the GDP.

c) If the lumber was imported from Canada, the value added would reduce by $3500 i.e of stage 1 and stage 2 value added.

2) If prices were to double overnight, the real GDP would remain constant while the nominal GDP would double.

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