Reference no: EM131376244
1. Consider an economy with two firms. Firm A produces tomatoesand firm B produces tomato sauce. In a given year, firm A produces 100,000 poundsof tomatoes, sells 40,000 pounds of tomatoes to firm B at $3 per pound, exports60,000 pounds of tomatoes at $3 per pound. Firm A pays $100,000 in wages toconsumers. Firm B produces 50,000 gallons of tomato sauce, and sells 40,000 gallonsto domestic consumers at $4 per gallon, and stores 10,000 gallons as inventory. FirmB pays consumers $40,000 in wages. In addition to the 40,000 gallons of tomato sauceconsumers buy from firm B, consumers import and consume 5,000 gallons of tomatosauce, and they pay $6 per gallon for the imported tomato sauce.
(a) Calculate GDP usingi. The product approach;
ii. the expenditure approach;
iii. the income approach.
(b) What is GNP in this economy? Determine GNP and GDP in the casewhere 20% of firm A's shares is owned by foreigners, so that 20% of its profits goto foreigners and are not distributed to domestic consumers.
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