Consider an economy composed of just two firms: Orange Inc. and Juice Inc. Orange Inc. grows and sells oranges while Juice inc. produces and sells orange juice. from the following information determine GDP using three approaches: expenditures, income and value added

Consider an economy composed of just two firms: Orange Inc. and Juice Inc. Orange Inc. grows and sells oranges while Juice inc. produces and sells orange juice. from the following information determine GDP using three approaches: expenditures, income and value added

 

Answer:

Orange juice

Value added method

GDP= Sales ( To public + juice Inc.)

= $10000+ $25000= $35000

GDP= $35000

Income method

GDP = wages + profit

=$10000+$25000

GDP= $35000

As expenses is not given we can not calculate it by expenditure approach

Juice Inc.

Value Added Approach

GDP= Sales – intermediate consumption

= $40000- $25000

GDP = $15000

Income Approach

GDP= wages ( profit is 0)

GDP = $ 15000

we cannot use expenditure approach as no expenses are given

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