ECON102 Study Guide - Gdp Deflator
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All the following transactions take place during the same year.
Assume that a farmer rents a 20-acre farm in the White Creek Valley. During the current year, the farmer produces 100,000 bushels of wheat that he sells to a miller for $300,000 using various farming equipment. The farmer had to borrow from the bank to buy the farming equipment and pay $50,000 interest. Finally, the labor costs are $200,000 and the rent he pays to the owner of the land is $30,000.
The miller produces and sells to "Bang Bakery"Ā in Newark 1,000 lbs of flour worth $600,000. The flour is produced in a $100,000 mill in Hockessin; no rent is paid, the wage bill is $180,000 and interest payments are $70,000. Finally, "Bang Bakery"Ā makes and sells bread to Newark consumers for $1,000,000. The rent for their factory and their stores is $100,000Ā their interest payments are $50,000 - their wage bill, $300,000. It was not a good year for "Bang Bakery"
Calculate the contribution to GDP of these transactions using three different methods:
(8 points) The value-added approach
Value added by the farm:
Value added by the mill:
Value added by the bakery:
Total value added:
(8 points) The income approach (fill the table and explain how you obtain the values)
Various forms of income (Name the categories) |
Ā | Ā | Ā | Ā |
Total |
farm: |
$ |
$ |
$ |
$ |
$ |
mill: |
$ |
$ |
$ |
$ |
$ |
bakery: |
$ |
$ |
$ |
$ |
$ |
Total |
$ |
$ |
$ |
$ |
Ā |
Ā
(4 points) The expenditure approach
Ā