Question

Consider the country of Agrovia, whose GDP is discussed in “A Numerical Example” on page 396. Construct a set of national accounts like that in Table 20-6 assuming that wheat costs $5 per bushel, there is no depreciation, wages are three-fourths of national output, indirect business taxes are used to finance 100 percent of government spending, and the balance of income goes as rent income to farmers.

Answer 1

Output = $1000

Cost of FP = $750 in wages, $125 in interest, and $75 in rent

Profit = output – expenses = $ 1000 – ($ 750 + $ 125 + $ 75) = $ 50

Investment & Consumption

$C=¾x1000=750$

$I=1000–750=250$

Product Approaches  the GDP with Product Approaches is 1000

$Income Approaches GDP/Y = w + r + I + pGDP/Y=w+r+I+p$

$GDP/Y=750+125+75+50=1000$