A two-person economy: The Mechanic repairs the farmer’s tractor for $200. The fa
ID: 1135897 • Letter: A
Question
A two-person economy: The Mechanic repairs the farmer’s tractor for $200. The farmer grows wheat, which he sells to a Mechanic for $100. The mechanic buys a dog from the farmer for $50.
a. What is the total GDP of the two-person economy as described above assuming all goods and services were final? Calculate and explain (show all work and explain in detail)
b. What is the total money supply? Calculate and explain (show all work and explainin detail)
c. What is the velocity of money? Calculate and explain (show all work and explain in detail)
Explanation / Answer
a)
Total expenditure method can be used to calculate GDP:
Farmer 's expenditure = $ 200
Mechanic's expenditure = $ 100 + $ 50
GDP = $ 200 + $ 100 + $ 50
= $ 350
b)
MV = GDP
M : Quantity of Money
V: Velocity of Money
MV = $ 350
MV = Money Supply
Hence. Money supply = $ 350
c)
Initially, farmer had $ 200 which he pays to Mechanic and mechanic pays back $ 150
Hence, we can say M = 200
200*V = 350
V = 350 /200
= 1.75
Velocity of Money = 1.75
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.