480 PART 6 Economic Growth 5. Let\'s figure out GDP for Robinson Crusoe. a. Init

Question

480 PART 6 Economic Growth 5. Let's figure out GDP for Robinson Crusoe. a. Initially, he is stuck on an island without the wisdom and local knowledge of Friday. Because Crusoe is a proper Englishman, he wants to keep his accounts. This year, he catches and eats 2,000 fish valued at one British pound (C) each, grows and eats British pound ( each, grows and eats 4,000 coconuts valued at 0.5 British pounds each, and makes two huts (housing) valued at 200 pounds each. If government purchases are zero and there is no trade, what is C for Crusoe? What is I? What is Y? (We are going to start using those letters as if they mean something: See question 12 in the previous section.) Wa b. One year, he learns of a tribe on a nearby island who are willing to trade with him: If he gives fish, they give clams. He produces just as much as before, but he trades 500 of the 2,000 fish and receives 10,000 clams valued at 5 clams per British pound What is the British pound value of the ex- ported fish? Of the imported clams? What are C, I, and X now? What is GDP now? $20/ho c. The following year, Crusoe produces the same as in every other year, but a tribe on the other side of the island steals his two huts after he makes them, and gives him nothing in return. So he exports, but does not im- port at all. What are C, I, X, and Y now? d. In Crusoe's final year on the island, he

Explanation / Answer

a) 2000 fish at 1pound and 4000 coconuts at 0.5

2000 * 1 + 4000 * 0.5 = 4000

i = 2 huts = 2 *200 = 400

Y = C+I+G+NX

Y = 4000 + 400 + 0 + 0 = 4400

b) C = 1500 * 1 + 4000 * 0.5

C = 3900

I = 2. 200 = 400

Now 500 fish exported in exchange of 10000 clams

5 clams = 1 Pound

500 fish = 2000 Pound

Fish = 4 pound

Y = 3500 + 400 + 0 + 0 = 3900

c ) C = 3500

I = 400

NX = 500 at the domestic rate

or 2000 at the exchange rate

Y at domestic rate = 3900 + 500 = 4400

Y at exchange rate = 3900 + 2000 = 5900

d) Now C = 2000 +2000 + ( 3 + 2 + 1 + 1 ) = 4007

I = 2 * 200 = 400

NX = 0 - ( 3+2+1+1) = -7

Y = 4007 + 400 + 0 + ( -7 )

Y = 4400

e) In the part c, he will not be happy over the loss investment unless he can recover it easily from the trade bargain.

In the part d, the loss was not that much material but could have higher emotional value.

However, GDP does not take into consideration emotional value.

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