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13. Use the following information to answer the question. There are three firms (total) in an economy: X, Y, and Z. Each firm produces goods that may be used for consumption or as an input in the production process. Firm X buys $100 worth of goods from Y, and $200 worth of goods from firm Z and produces 200 units of output at S5 per unit. Firm Y buys $100 worth of goods from firm X, and $300 worth of goods from firrm Z, and produces 100 units of output at 85 per unit. Firm Z buys $25 worth of goods from firm X, and $75 worth of goods from firm Y, and produces 10 units at $20 per unit. Given this information, what is the economys GDP? A $1700 В $900 С $1000 D $720
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Answer #1


Value Added by Firm X

Purchases from Firm Y = $100

Purchases from Firm Z = $200

Sales = 200 * $5 = $1,000

Value added = Sales - Purchases from Firm Y - Purchases from Firm Z

Value added = $1,000 - $100 - $200 = $700

The value added by Firm X is $700.

Value added by Firm Y

Purchases from Firm X = $100

Purchases from Firm Z = $300

Sales = 100 * $5 = $500

Value added = Sales - Purchases from Firm X - Purchases from Firm Z

Value added = $500 - $100 - $300 = $100

The value added by Firm Y is $100.

Value added by Firm Z

Purchases from Firm X = $25

Purchases from Firm Y = $75

Sales = 10 * $20 = $200

Value added = Sales - Purchases from Firm X - Purchases from Firm Y

Value added = $200 - $25 - $75 = $100

The value added by Firm Z is $100.

Calculate the GDP -

GDP = Value added by Firm X + Value added by Firm Y + Value added by Firm Z

GDP = $700 + $100 + $100 = $900

The economy's GDP is $900.

Hence, the correct answer is the option (B).

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