Textbooks , The Macroeconomy Today,S chiller, Bradley R., 14th edition. Do the f
ID: 1156550 • Letter: T
Question
Textbooks ,The Macroeconomy Today,S chiller, Bradley R., 14th edition.
Do the following problems:
a. Suppose that furniture production encompasses the following stages:
Stage 1: Trees sold to lumber company $1000
Stage 2: Lumber sold to furniture company $1800
Stage 3: Furniture company sells furniture to retail store $3000
Stage 4: Furniture store sells furniture to consumer $4200
(i) What is the value added at each stage?
Stage 1 _______
Stage 2 _______
Stage 3 _______
Stage 4 _______
(ii) What is their contribution to GDP? Explain your answer clearly.
(iii) If lumber was imported from Canada, how would GDP be affected ? (Whether it is going to go up or down and by how much and why ? )
please, no hand writing , or make youe hand writng so easy to read
Explanation / Answer
Do the following problems:
a. Suppose that furniture production encompasses the following stages:
Stage 1: Trees sold to lumber company $1000
Stage 2: Lumber sold to furniture company $1800
Stage 3: Furniture Company sells furniture to retail store $3000
Stage 4: Furniture store sells furniture to consumer $4200
(i) What is the value added at each stage?
Stage 1 – Value added = $1000 (assuming input is 0)
Stage 2 – Value added = $800 (1800 – 1000)
Stage 3 – Value added = $1200 (3000 – 1800)
Stage 4 – Value added = $1200 (4200 – 3000)
(ii) What is their contribution to GDP? Explain your answer clearly.
The contribution to GDP will be $4200.
GDP is the money value of all final goods and services produced inside the domestic territory of a country during a period of one year. While calculating GDP we can take the money value of all final goods or we can take the sum of value added at each stage of production.
In the above question if we take the money value or the value added the contribution is $4200.
(iii) If lumber was imported from Canada, how would GDP be affected? (Whether it is going to go up or down and by how much and why?)
If the lumber imported from Canada, the contribution to GDP will be $2400. The contribution to GDP will decrease by 1800.
When it is imported the first two stages will eliminate since there is no production is happening. The nation will directly purchase and sell the consumers. From the final sales price if we deduct the value added at the first two stages the contribution to GDP will be $2400 (4200 – 1800).
The contribution to GDP will decrease if we import the furniture from Canada. As we can see that the first two stages of selling trees and lumber sold to Furniture Company is not there and as a result the GDP is decreasing.
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