2 National Accounting (30 Points) Thanks to your solid economics training you re

Question

2 National Accounting (30 Points) Thanks to your solid economics training you received at SBU, you land the job of CNA (Chief National Accountant) of Stonyland, a small country founded by SBU graduates. You have the following list of transactions for the year 2017. 1. The local coffee shops sold $10000 worth of coffee to local consumers. To produce the coffee they purchased $2000 worth of beans from the local coffee growers. The coffee growers sold $2000 of coffee beans to the local coffee shops and $5000 to Starbucks (A foreign company). 2. The local textile company bought $1000 worth of wool from an Australian company and produced $10000 worth of clothes. Of these clothes 60% were sold to domestic consumers, 20% to the government of Stonyland, and 20% to foreigners. The local textile companies also bought 10 trucks to do their deliveries, each worth $1000, from FIAT (A foreign company). 3. The local bananas producers produced $50000 worth of bananas. $30000 were sold to domestic consumers, $10000 were sold to Chiquita (a foreign company) and $10000 were sold to a local subsidiary of Dole (a foreign company). The subsidiary produced $20000 worth of canned bananas that were sold to domestic consumers. Dole paid $5000 in wages and repatriated the remaining income. 4. The government raised $2000 from Stonyland citizens in taxes, paid $1000 in pensions to retired Stonyland citizens and purchased 1 Dell (A foreign Company) computer (worth $1000) to keep track of its records. 5. 3 Stonyland citizens got consulting jobs in the US that gave each of them an income of $500. Calculate the following objects for 2017 in Stonyland:

(a) Gross Domestic Product (GDP) (5 pts)

(b) Gross National Product (GNP) (5 pts)

(c) Consumption (5 pts)

(d) Investment (Private) (5 pts)

(e) Investment (Government) (5 pts)

(f) Government Consumption

Explanation / Answer

a)For finding the GDP we first see the value added of each sector . The value added of each sector is given in the table below

in canned bananas the local subsidiary had purchased the bananas worth $10000 for production of canned bananas and hence were subtracted as an intermediary good . Also the coffee shops had bought $2000 coffee beans from the growers so it was already added under the coffee growewrs and hence is an intermediary good for the shop owners.

the GDP will be the final value added for all the sectors ie

$(8000+7000+9000+10000+50000) = $84000 which is the GDP by value added method

b) GNP is given by Y = C + I + G + X + Z  

where C is consumption

I is investment

G is government spending

X is net exports and

Z is the net income earned from abroad

ie GDP + net income earned from abroad by 3 citizens - income sent back by Dole ( out of the value added by Dole in the domestic country $ 5000 was wages and the rest $5000 is sent back )

GDP = $84000 + ($500*3) -$5000

= $ 84000+1500 - $5000

=$ 85500-$5000 = $80500

C) Consumption is the goods used for final consumption given by consumption from all sectors

Consumption in coffee sector = $ 10000

in textile = $ 6000 ( as 60% was consumed by the domestic population )

in bananas = $30000 ( sold to domestic consumers )

in canned bananas = $20000

Total = $66000

So consumption by domestic by consumers is $66000

d)Investment private is given by the investments done by the businesses or households .

In this case the local textile company has bought 10 trucks which are used in the delivery of goods . So it is considered as an investment

The value of 1 truck was $1000

For 10 trucks $10000

hence the private investment is $10000

e)Investment by government is the pruchase of computer for keeping the records .

This is given by $1000 the cost of computer

so government investment is $1000

f) Government consumption is the spending on final goods and services by government.

The government spent on purchasing or consumption of textiles produced by the local textile company which comes under government consumption given by $2000 ( 20% of $10000)

Coffee shop coffee bean growers cloth / textile banana canned banana Total sales $10000 $2000+$5000 $10000 $50000 $20000 intermediate value -$2000 -$1000 -$10000 value added $8000 $7000 $9000 $50000 $10000

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