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Unformatted text preview: Economics 101 Marek Kapiˇ cka Intermediate Macroeconomic Theory Spring 2011 Problem Set 2 Answers 1 Measuring GDP Consider the following economy. There are two firms and a government. First, there is a phone company that has a total revenue of $14000. The phone company pays $5000 in wages and spends $2000 on a car that is used for repair service. The phone company does not have any other costs. Second, there is a car factory which produces 15 cars. 12 cars are sold to consumers, one to the phone company and two cars are unsold at the end of the year. The price of each car is $2000. The car factory pays $4000 in wages and $1000 to the phone company for local and long distance service. Finally, there is the government. The government spends $1000 to pay one police officer in this economy and another $1000 are spent on government fellowships for bright college students. 1. GDP by Production: Phone company’s Value added: $14000 (car is investment, not an intermediate good). Car company’s value added: $30000 (value of cars produced, inventory counts as investment purchased by the company itself) - $1000 (phone services are intermediate good) = $29000....
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This note was uploaded on 12/26/2011 for the course ECON 101 taught by Professor Dumbass during the Fall '08 term at UCSB.
- Fall '08