Question

1. Suppose that bagel production encompasses the following stages:

Stage 1:     Farmer sells wheat to a miller.                                    $0.10

Stage 2:     Miller sells flour to a baker.                                           $0.30

Stage 3:     Baker sells bagel to Tim Hortons.                              $0.65

Stage 4:     Tim Hortons sells bagel to consumer.                     $0.90

a. What is the value added at each of the four stages?

b. How much does the bagel contribute to GDP?

c. By how much would your answer to b). change if the wheat in Stage 1 were imported from China? (I’m looking for a dollar amount here.)

2. From the following figures, calculate GDP using the expenditure approach:

Consumption                                            $2,300 billion

Depreciation                                                  $250 billion

Retained earnings                                       $100 billion

Gross investment                                        $650 billion

Imports                                                              $350 billion

Social Security taxes                                  $250 billion

Exports                                                              $200 billion

Indirect business taxes                            $300 billion

Government purchases                         $700 billion

Personal income taxes                             $800 billion

Item	Year 1 Quantity	Year 2 Quantity	Year 1 Price	Year 2 Price
Cat food	25 bags	30 bags	$6.00	$8.00
Dinner at El Zarape's	50 meals	45 meals	$9.00	$12.00

3.    Refer to the table above.

a. By what percentage has nominal GDP changed from Year 1 to Year 2? Note: Use the following formula: % change in GDP =                        Year 2 GDP – Year 1 GDP

                                                                                                          (Year 1 GDP + Year 2 GDP)/2

b. Using Year 1 as your base year, by what percentage has real GDP changed from Year 1 to Year 2? (Note: Use the formula given above in part 3a).

Answer 1

Question 1

(a)

Value added is the difference between the value of output and intermediate goods used in production.

Stage 1

Farmer sells wheat to miller for $0.10

Value added = Value of output - Intermediate consumption

Value added = $0.10 - $0 = $0.10

The value added is Stage 1 is $0.10

Stage 2

Miller purchase wheat from farmers for $0.10 and sells flour to baker for $0.30.

Value added = Value of output - Intermediate consumption

Value added = $0.30 - $0.10 = $0.20

The value added is Stage 2 is $0.20

Stage 3

Baker purchase flour from miller for $0.30 and sells bagel to Tim Hortons for $0.65

Value added = Value of output - Intermediate consumption

Value added = $0.65 - $0.30 = $0.35

The value added is Stage 3 is $0.35

Stage 4

Tim Hortons purchased bagels from bakers for $0.65 and sells them to consumer for $0.90.

Value added = Value of output - Intermediate consumption

Value added = $0.90 - $0.65 = $0.25

The value added is Stage 4 is $0.25

(b)

Calculate GDP -

GDP = Value added in Stage 1 + Value added in Stage 2 + Value added in Stage 3 + Value added in Stage 4

GDP = $0.10 + $0.20 + $0.35 + $0.25

GDP = $0.90

The bagel contributes $0.90 to GDP.

(c)

If the wheat is imported from China then actual production with in the country took place in stage 2, stage 3, and stage 4.

So,

GDP = Value added in Stage 2 + Value added in Stage 3 + Value added in Stage 4

GDP = $0.20 + $0.35 + $0.25 = $0.80

The GDP is $0.80

Thus,

The GDP decreased by $0.10 if the wheat in Stage 1 were imported from China.

Note -: As per the Chegg Answering Policy, when more than 1 question is posted then, in that case, only 1st question is answered with complete explanation.