An economy has two firms. Firm A produces wheat and firm B produces bread. In a...
An economy has two firms. Firm A produces wheat and firm B produces bread. In a given year, produces 50 bushels of wheat, sells 20 bushels to firm B at $3, exports 25 bushels at the same price to France, and stores 5 bushels as inventory. Firm A pays $50 in wages to consumers. Firm B produces 50 loaves of bread and sells them to consumer for $2 per loaf. Firm B pays $20 in wages. In addition, consumers import and consume 15 loaves from France paying $1 per loaf.
（d）,Assume that the owners of Firm B are French and repatriate all of Firm B’s profits. What is the current account balance? What is the financial account balance?
Homework Answers
Solution: Exports: Firm A exports 25 bushels * $3/bu. = $75
Imports: The import by consumers 5 loaves of bread * $1/loaf = $15.
Net exports = Exports - Imports = $75 - $15 = $60
Firm B pays $60 to Firm A for $20 intermediate input (bushels of wheat) thus the value added equals $40 (=$60 - $40)
Thus NFP = -$20
Current account = Net exports + Net factor payments = 60- 20 = $40
Financial account = - Current account = -$40
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An economy has two firms. Firm A produces wheat and firm B
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Assume an economy with two firms. Firm A produces wheat and firm B produces bread. In a given year, firm A produces 50,000 bushels of wheat, sells 20,000 bushels to firm B at $3 per bushel, exports 25,000 bushels at $3 per bushel, and stores 5,000 bushels as inventory. Firm A pays $50,000 in wages to consumers. Firm B produces 50,000 loaves of bread, and sells all of it to domestic consumers at $2 per loaf. Firm B pays consumers...
Assume an economy has 2 firms. Firm A produces wheat and firm B produces bread. In...
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