There are 3 questions in this assignment. Please show both your final answers an
ID: 1223580 • Letter: T
Question
There are 3 questions in this assignment. Please show both your final answers and the way you reach them. Good luck! 1. Robinson Crusoe lives on an island with his friend, "Friday". Robinson owns a firm producing almost everything needed and hires Mr. Friday as his employee. This year, the firm produces 20 piles of lumber with a price of $200/pile. 10 piles are used building 2 new houses with a price of $5,000 each and the rest are used for winter heating. The firm also produces in total 500 kg of food with an average price of$4/kg. The firm pays Mr. Friday $6,000 salary and the remaining revenue (the money collected by the firm from selling goods deducted by the salary paid to Mr. Friday) is paid to Robinson as the return of capital (a kind of human capital since he uses his intelligent brain to organize the firm) The island government collects 10% of the income from both Robinson and Mr. Friday as tax. Among all tax revenue collected by the government, $350 is paid to Mr. Friday for island defense. The rest tax revenue is paid back to Robinson as a subsidy of owning a firm. Finally, Robinson and Mr. Friday use all their money up buying all the products from the firm (1) Use product approach ofGDP to calculate the total GDP of this island in the given year. (2) Use expenditure approach of GDP to calculate the total GDP of this island in the given year. (3) Use income approach of GDP to calculate the total GDP of this island in the given year.Explanation / Answer
The firm here produces 20 piles out of which 10 are used for constructing houses worth Rs. 5000 each so the total sale value = $10000
The rest 10 piles are used for burning winter woods so the sale value is (10*200)= $2000
Further the firm produces 5000 kg food worth $4/kg so the value is = $2000
Thus as per product approach the total GDP of the island = 10000+2000+2000= $14000
2.The GDP by using expenditure approach is calculated by using the formulae C+I+G+(X-M).
Here since there are no government purchases or Investment or export and import thus the total GDP will be equal to the C which is the level of consumption of goods and services. Thus as shown in 1 the GDP will be $14000
3. The GDP can be calculated by using the income approach as GDP= National income + Indirect business taxes + Capital consumption and depreciation + Net factor payment to the rest of the world.
The national income is $14000
The indirect taxes of business is $1400
Thus the GDP in the income approach shall be 14000 + 1400 =$15400
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