psoln1 - Practice Problems I Solutions 1 Consider an...

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Practice Problems I Solutions 1. Consider an economy that consists of a coconut grower, a restaurant, and a government. The coconut grower produces and sells $1000 worth of coconuts. The grower has no raw material inputs. The coconut producer pays $700 in wages and $100 in taxes. The restaurant produces and sells $1800 worth of meals. The restaurant buys $500 worth of coconuts as a raw material for producing the meals. The restaurant pays $1000 to its workers. The government in this economy pays $200 in wages to government bureaucrats. a.) Fill out the provided production statements for the two businesses. Indicate the gross output of each firm and the value added by each firm. Gross Production Statement (Coconuts) Costs Receipts Wages $700 Coconuts $1,000 Taxes $100 Profits $200 Gross Value of Inputs $1,000 Gross Value of Output $1,000 Coconut Producer’s Value Added Costs Receipts Wages $700 Coconuts $1,000 Taxes $100 Profits $200 Value Added from Inputs $1,000 Value Added to Output $1,000
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Gross Production Statement (Restaurant) Costs Receipts Coconuts $500 Meals $1,800 Wages $1,000 Profit $300 Gross Value of Inputs $1,800 Gross Value of Output $1,800 Restaurant’s Value Added Costs Receipts Meals Wages $1,000 - Coconuts $1,300 Profit $300 Value Added from Inputs $1,300 Value Added to Output $1,300 b.) Determine GDP in this economy using the product approach. Don’t forget to include government production. 5000 , 2 $ 200 $ 300 , 1 $ 000 1 n Productio Government ts Restauran in Added Value Coconuts in Added Value = + + = + + = , $ GDP Domestic consumers in this economy buy $400 worth of coconuts to eat at home and spend $1800 on restaurant meals. Consumers also pay $100 in income tax to the government. The coconut producer sells $100 worth of coconuts to foreigners. There is no investment in this economy. c.) Determine GDP in this economy using the expenditure approach. 500 , 2 $ 100 $ 200 $ 200 , 2 $ exports) (Coconut 100 $ : $200 : $0 : $2,200 (Meals) $1,800 (Coconuts) 400 $ : = + + = + + + = = + NX G I C Y NX G I C 2
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Foreigners own the restaurant in the economy. All restaurant profits are therefore paid to foreigners. d.) Determine GNP in this economy using the income approach. Reconcile any different between GNP and GDP in this economy. $2,500
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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psoln1 - Practice Problems I Solutions 1 Consider an...

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