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18 May, 21:04

There are three firms in an economy: X, Y, and Z. Firm X buys $200 worth of goods from firm Y and $300 worth goods from firm Z; and produces 250 units of output at $4 per unit. Firm Y buys $150 worth goods from firm X, and $250 worth goods form firm Z; and produces 300 units of output at $6 per unit. Firm Z buys $75 worth goods from X, and $50 worth goods from firm Y; and produces 500 units at $2 per unit. Given this information, what is the economy's GDP?

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  1. 18 May, 21:21
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    Answer: $2,775

    Explanation:

    Total Value of goods sold by X:

    = X sells to Y + X sells to Z

    = $150 + $75

    = $225

    Total Value of goods sold by Y:

    = Y sells to X + Y sells to Z

    = $200 + $50

    = $250

    Total Value of goods sold by Z:

    = Z sells to X + Z sells to Y

    = $300 + $250

    = $550

    Value of goods produced by X = units of output * cost per unit

    = 250 units * $4

    = $1,000

    Value of goods produced by Y = units of output * cost per unit

    = 300 units * $6

    = $1,800

    Value of goods produced by Z = units of output * cost per unit

    = 500 units * $2

    = $1,000

    GDP using the value added approach:

    = [Goods produced by X - VA by X] + [Goods produced by Y - VA by Y] + [Goods produced by Z - VA by Z]

    = [$1,000 - $225] + [$1,800 - $250] + [$1,000 - $550]

    = $775 + $1,550 + $450

    = $2,775
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