Question

Exercise 3. A simple economy. Consider an economy with three domestic agents: Ann, Bill, and Carl. And a foreign economy with a representative agent Fer.

• Ann owns the land and uses the trees in their yard for wood. She cuts down the trees and sells the wood.

• Bill owns a firm that buys wood and builds and sell tables.

• Carl is a retired agent that has some wealth.

• There is no government.

• During the year the following transactions happen:

o Ann sold 700 pounds of wood at price $10/pound. The other 300 pounds are kept as inventory of the firm.

o Bill bought 500 pounds of wood, produced and sold 100 tables at price $500/table.

o Fer bought 30 tables from Bill.
o The domestic agents (A, B & C) bought 70 tables from the firm owned

by Bill.
o Bill’s capital depreciated by $1000.

Calculate GDP for this economy and do the income decomposition (Wages, Taxes, Net Profits, Depreciation).

Answer 1