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Week 03, Day 4 - Exercise 1

Week 03, Day 4 - Exercise 1 - Firm 3 bought $4 million...

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EXERCISE #1 The following question is an exam question that I've used in a past semester and is an example of the GDP question examined in class. There is also an example in your Study Guide (on page 153). However, that example is full of errors and you should ignore it. 1. An economy consists of three firms. Firm 1 cuts trees into logs. Firm 2 cuts logs into lumber. Firm 3 makes furniture from lumber. In the past year, the following transactions occurred. Firm 1 sold 50% of its logs to Firm 2 and 50% of its logs to the rest of the world. Firm 2 sold 50% of its lumber to Firm 3 and 50% of its lumber to the rest of the world.
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Unformatted text preview: Firm 3 bought $4 million worth of lumber from the rest of the world. Firm 3 sold all of its furniture to households in the economy. Firm 1 Firm 2 Firm 3 Total Value of Sales $12 million $48 million $81 million Intermediate Goods $0 Wages $6 million $20 million $30 million Interest Payments $3 million $10 million $4 million Rent $2 million $7 million $12 million Profit $1 million $5 million $7 million Total Expenditure by Firm Value Added per Firm Give and explain the three methods of calculating Gross Domestic Product (GDP). Calculate GDP for this economy using all three methods. Show work clearly....
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