Consider an economy in which the following activities occur during a given year: (Total 10 points)

A steel company pays its workers $95,000 to mine iron ore and process it into 1000 kilograms of steel.

A car manufacturer purchases the steel for $113 per kilogram and pays its workers $27,000 to produce 38 cars, which it sells to final consumers for $6,300 per car.

a) What is the value-added by each of these activities?

b) What is the sum of incomes earned in this economy?

c) What is the value of final goods produced in this economy?

d) What is GDP in this economy?

e) Suppose that in the next year, the quantities of steel and cars are the same, wages paid by both companies are the same, but the price of steel is now $128 per kilogram and the price of a car is $5,900. What is the nominal GDP in the next year? What is the growth rate of real GDP between the first year and the next?

Consider an economy in which the following activities occur during a given year: (Total 10 points)

A steel company pays its workers $95,000 to mine iron ore and process it into 1000 kilograms of steel.

A car manufacturer purchases the steel for $113 per kilogram and pays its workers $27,000 to produce 38 cars, which it sells to final consumers for $6,300 per car.

a) What is the value-added by each of these activities?

b) What is the sum of incomes earned in this economy?

c) What is the value of final goods produced in this economy?

d) What is GDP in this economy?

e) Suppose that in the next year, the quantities of steel and cars are the same, wages paid by both companies are the same, but the price of steel is now $128 per kilogram and the price of a car is $5,900. What is the nominal GDP in the next year? What is the growth rate of real GDP between the first year and the next?

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