Consider an economy in which the following activities occur during a given year:
ID: 1200687 • Letter: C
Question
Consider an economy in which the following activities occur during a given year: 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. What is the value added by each of these activities? What is the sum of incomes earned in this economy? What is the value of final goods produced in this economy? What is GDP in this economy? 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 kilograms and the price of a car is $5,900. What is nominal GDP in the next year? What is the growth rate of real GDP between the first year and the next?Explanation / Answer
Assumption: 1) complete 1000 kg of steel is used in making 38 cars
a) The value added by Steel company is 113000 while value addedd by car manufacturer = 38*6300-113000=126400
b) Earning of Workers of steel company = 95000
Earning of steel company = 113000-95000 = 18000
Earning of Workers of car company = 27000
Earning of car company = 6300*38 i.e. 239400 - 27000 - 113000 = 99400
So Sum of income earned = 99400+27000+18000+95000 = 239400
c) The value of final goods = 6300*38 = 239400
d) GDP = value of final goods = 239400