chapter2

# chapter2 - Chapter 2 Numerical 1 Professor Production...

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Chapter 2 Numerical 1 GDP= Value of final goods produced during the year 1000 Coconuts=500 fish because 2 coconuts are worth one fish. +500 fish -100 fish (fish used as fertilizer are an intermediate good) GDP = 900 fish Gilligan consumes 200 coconuts = 100 fish + 100 fish = 200 fish Professor’s consumption of durable goods 100 coconuts stored =50 fish In an ideal accounting system, these stored coconuts would be treated as investment. However, in the national income accounts, because it is so difficult to tell when durable goods are consumed and when they are saved, they are counted as consumption. Professor’s consumption = 800 coconuts (400 fish) and 300 fish Total consumption = 900 fish Investment is 0 Gilligan’s income=200 fish (200 coconuts +100 fish) Professor’s income: 1000 -200 paid to Gilligan coconuts= 800 coconut 500-100 paid to Gilligan - 100 used as intermediate good= 300 fish Professor’s income= 700 fish Total income: 900 fish If the 100 fish are used as a fertilizer for next years production they are an investment as it increase future output rather than current. . In this case, GDP=1000 fish C=900 fish and I=100 fish. Professor's income is 800 fish, and Gilligan's income is 200 fish. Numerical 2 2. a. Furniture made in North Carolina that is bought by consumers counts as consumption, so consumption increases by \$6 billion, investment is unchanged, government purchases are unchanged, net exports are unchanged, and GDP increases by \$6 billion. Professor Production Coconuts 1000 Fish 500 Gilligan’ wages Coconuts 200 Fish 100 Stored coconuts Coconuts 200 Fertilizer 100 Price 2 coconuts per fish Gilligan Wages Coconuts 200 Fish 100 Consumption Coconuts 200 Fish 100

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b. Furniture made in Sweden that is bought by consumers counts as consumption and imports, so consumption increases by \$6 billion, investment is unchanged, government purchases are unchanged, net exports fall by \$6 billion, and GDP is unchanged. c. Furniture made in North Carolina that is bought by businesses counts as investment, so consumption is unchanged, investment increases by \$6 billion, government purchases are unchanged, net exports are unchanged, and GDP increases by \$6 billion. d. Furniture made in Sweden that is bought by businesses counts as investment and imports, so consumption is unchanged, investment increases by \$6 billion, government purchases are unchanged, net exports decline by \$6 billion, and GDP is unchanged. Numerical 3 a- ABC produces output valued at \$2 million and has total expenses of \$1.3 million (\$1 million for labor, \$0.1 million interest, \$0.2 million taxes). So its profits are \$0.7 million. XYZ produces output valued at \$3.8 million (\$3 million for the three computers that were sold, plus \$0.8
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## chapter2 - Chapter 2 Numerical 1 Professor Production...

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