Assume a economy has 2 companies. Company A produces flour and Company B produce
ID: 1167702 • Letter: A
Question
Assume a economy has 2 companies. Company A produces flour and Company B produces white bread. In a given year, Company A produces 50,000 bushels of grain, sells 20,000 bushels of grain to Company B at $3 per bushel, export 25,000 bushels of grain at $3 per bushel and stores the rest as inventory. Company A pays $50,000 in wages to consumers. Company B produces 50,000 loaves of white bread and sells all of it to domestic consumer at $2 per loaf. Company B pays consumers $20,000 in wages. The economy also imports and consumes 15,000 loaves of white bread for a $1 per loaf.
-Calculate Net Exports.
-Find Investment.
-Calculate GDP.
Explanation / Answer
Net Export
Export done by Company A = 25000 Bushels @ $3 per bushels
Value of Export done by Company A = 25000*3 = $75000
Import done by the economy = 15000 loaves @ $1 per loaf
Value of Import done by the economy = 15000*1 = $15000
Net Export = 75000 – 15000 = $60000
Investment:
Investment = investment (Fixed) + investment (inventory) + investment (residential)
Investment = 0 + 5000 bushels @ $3 + 0
Investment = 5000*3 = $15000
GDP: (output approach is used)
Net Value created by Company A = 50000 bushels @ $3 = 50000*3 = $150000
Net value created by Company B = 50000 loaves @ 2 – 20000 bushels @ 3
Net value created by Company B = 50000*2 – 20000*3 = $40000
GDP of economy = 150000+40000 = $190000
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