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) C = Coconuts + Fish

C = 4000*0.5 + 2000*1

= 4000

I = Huts

I = 200*2 = 400

Y = C+G+I+NX

= 4000 + 0 + 400 +0 = 4400

b) 500 fish = 10000 clams and

5 clams per pound

So, 500 fish = 2000 Pounds

Exported fish is worth of 4 Pound

C = 1500 Fish + 4000 Coconuts

C = 1500 * 1 + 4000 * 0.5

C = 3500

I = Huts

So, I = 200 * 2 = 400

Y = 3500 + 400 = 3900

c) C = 1500 *1 + 4000 * 0.5

C = 3500

I = 2 * 200 = 400

X = 500 Fish

At the domestic rate it would be 500 Pounds

while at the exchange rate it would be (500 * 4)= 2000 Pounds.

Y = 3500 + 400 + 500 = 4400

d) C = 4000 + ( 3 + 2 +1 + 1) = 4007

I = 400

G = 0

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

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

Y = 4400

e) In the part c he has to incur loss of investment so he wouldn't be happy.

In part d although material value is negligible which should not bother him, it's emotional value might be far higher but it is not counted in GDP.

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