Consider an economy that produces wood, boats, and has a marketing agency. This year domestic wood production generates revenues of $80. Of this $80 worth of wood, $40 were purchased by the boat producer and $40 were sold abroad to a foreign company. The wood producer paid $40 worth of wages and $10 worth of taxes. The boat producer combines the services of the marketing agency, the wood it purchased from the wood producer, and $20 worth
Consider an economy that produces wood, boats, and has a marketing agency.
This year domestic wood production generates revenues of $80. Of this $80 worth of wood, $40
were purchased by the boat producer and $40 were sold abroad to a foreign company. The wood
producer paid $40 worth of wages and $10 worth of taxes.
The boat producer combines the services of the marketing agency, the wood it purchased from the
wood producer, and $20 worth of labor (wages) to produce $120 worth of boats. Its revenues,
which include a boat produced in the previous year and that was carried as inventory, are $130.
Domestic families buy all these boats. This company pays $10 worth of taxes.
The marketing agency, whose sole client is the boat company, generates a revenue of $40 which
is enough to cover its labor costs of $40. This company pays no taxes.
The government in this economy uses the $20 worth of taxes and builds a port. The cost of the
port is $40 that are paid to workers. This port is partially financed by an international loan of $20.
Calculate GDP using the three alternative approaches. Show your derivations.
Step by step
Solved in 3 steps
