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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

A farmer grows wheat, which she sells to a miller for $100. The miller turns the wheat into flour, which she sells to a baker for $150. The baker turns the wheat into bread, which she sells to consumers for $180. Consumers eat the bread.

a. What is GDP in this economy? Explain.

b. Value added is defined as the value of a producer’s output minus the value of the intermediate goods that the producer buys to make the output. Assuming there are no intermediate goods beyond those described above, calculate the value added of each of the three producers.

c. What is total value added of the three producers in this economy? How does it compare to the economy’s GDP? Does this example suggest another way of calculating GDP?

Sub part (a):

To determine

The GDP of the economy.

Explanation

Gross Domestic Product is the summation of money value of all the final goods and services that are produced by the country within its political boundary within a financial year. Thus, it will take into account all the final goods and services produced in a year in the country.

The Gross Domestic Product is the money value of all the final goods and services produced within the economy in a financial year...

Sub part (b):

To determine

Value addition.

Sub part (c):

To determine

Total Value Added.

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