Economica is a country that has only four companies: Heart, Diamond, Spade, and

Question

Economica is a country that has only four companies: Heart, Diamond, Spade, and Club. The country does not trade with the rest of the world, implying that its net exports are zero. Thus, Economica derives all of its production of goods and services from these four companies. Heart provides some goods and services that the other companies use to provide their goods and services. The table below shows the sales (in dollars) of the four companies for 2012.

Company: Heart Sales: $400

Company: Diamond Sales: $100

Company: Spade Sales: $300

Company: Club Sales: $200

If Economica had no inventory at the end of 2012, then which of the answer choices gives a possibly correct value of Economica’s GDP for 2012 and why?

More information is needed since the sales values do not distinguish between sales of goods produced and sales of services performed.

$1,500. Economica’s GDP exceeds the sales of its companies since GDP measures all goods and services produced, as well as inventory goods; sales represent only sold goods but not inventory goods.

$1,000. The sum of the sales of Economica’s companies represets its GDP.

$700. Economica’s GDP includes final goods and services produced; sales would include all goods and services sold, including intermediate goods.

More information is needed since the sales values do not distinguish between sales of goods produced and sales of services performed.

$1,500. Economica’s GDP exceeds the sales of its companies since GDP measures all goods and services produced, as well as inventory goods; sales represent only sold goods but not inventory goods.

$1,000. The sum of the sales of Economica’s companies represets its GDP.

$700. Economica’s GDP includes final goods and services produced; sales would include all goods and services sold, including intermediate goods.

Explanation / Answer

If Economica had no inventory at the end of 2012...

Ans: A. More information is needed since the sales values do not distinguish between sales of goods produced and sales of services performed.

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