PSa 10 - Statistics.pdf - DEPARTMENT OF ECONOMICS ECON1000 Principles of Economics Problem Set 10 Economic Statistics 1 An economy has only three

# PSa 10 - Statistics.pdf - DEPARTMENT OF ECONOMICS ECON1000...

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1. An economy has only three industries. The cotton industry uses no inputs and grows \$2,300 worth of cotton that is bought by the fabric industry, which uses it to weave \$4,100 worth of fabric, which in turn is used by the garment industry to sew \$9,500 in jeans. Compute the GDP using both the value added and final goods methods. Since both the cotton and fabric industries only sell to other producers, garments is the only final good in this economy. So the final goods method, which counts the full value of only final goods, would lead to GDP of \$9,500 since that is the value of garments produced. The value added method aggregates the value added in the production of each product. With no inputs the entire \$2,300 of cotton production is value added. The fabric industry creates \$4,100 of output from \$2,300 worth of inputs, so their value added is difference, or \$1,800. Similarly, the value added of the garment industry is the difference between the \$9,500 of jeans manufactured and \$4,100 worth of fabric used, which is \$5,400. The sum of \$2,300, \$1,800, and \$5,400 is \$9,500.

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