What is the change in GDP according to the *****income**** approach? How do the inputs that make up Net Domestic Income (wages, interest, and profits) change? I noticed that using the expenditure approach the GDP DECREASED by 800 dollars. My income approach is not working out.
What is the change in GDP according to the *****income**** approach? How do the inputs that make up Net Domestic Income (wages, interest, and profits) change? I noticed that using the expenditure approach the GDP DECREASED by 800 dollars. My income approach is not working out.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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What is the change in GDP according to the *****income**** approach? How do the inputs that
make up Net Domestic Income (wages, interest, and profits) change?
I noticed that using the expenditure approach the GDP DECREASED by 800 dollars. My income approach is not working out.
Transcribed Image Text:Suppose that the Government in this economy instead decided to import the same quantity of
widgets from abroad and stopped buying widgets from Firm 2. In this case, the 10% of widgets
that Firm 2 was going to sell to the Government is instead kept as inventories for next year.
Transcribed Image Text:Firm 1 produces tires and sells $5,000 of its tires to Firm 2. Firm 1's costs include $3,000 to its
workers, $500 as payments of interest on its outstanding debt, and $1,000 on rent for the
property it uses. The owners keep the remaining revenues as profits.
Firms 2 buys the tires and turns them into a final good called widgets. Firm 2 buys $5,000 of
tires, creates these widgets, and produces $8,000 worth of widgets. 75% of these widgets are
sold to domestic consumers, and 10% of the widgets are sold to the local Government. Firm 2
then keeps the last 15% of the widgets. It keeps these 15% of the widgets to be sold in the
widget market next year.
Firm 2 spends $5,000 on tires as an input to production, pays $400 to its staff, pays $500 in
building rent, pays $300 to rent some machines it needs to use and does not own, and pays the
rest of its revenues to the owner of the firm as profits.
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