Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,000. Neither firm had any inventory at the beginning of 2006. During that year, Cowhide produced enough leather for 20 couches. Couches, Inc. bought 80% of that leather for $16,000 and promised to buy the remaining 20% for $4,000 in 2007. Couches, Inc. produced 16 couches during 2006 and sold each one during that year for $2,000. What was the economy's GDP for the year? $32,000 $36,000 $40,000 $52,000
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B) $36,000 Cowhide - value added: 16'000 - sold 4'000 - inventories Couches - value added: 16*2'000 - internal consumption = 16*2'000 - 16'000 = = 32'000 - 16'000 = 16'000 GDP=16'000 + 4'000 + 16'000 = 36'000
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