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Consider an economy with a corn producer, some consumers, and a government
Consider an economy with a corn producer, some consumers, and a government. In a given year, the corn producer grows 3 million tons of corn, and the market price for corn is $50 per tonne. Of the 3 million tonnes produced, 2 million tonnes are sold to consumers, 0.5 million are stored in inventory, and 0.5 million are sold to the government to feed the army. The corn producer pays $60 million in wages to consumers and $20 million in taxes to the government. Consumers pay $10 million in taxes to the government, receive $10 million in interest on government debt, and receive $5 million in Canadian Pension Plan payments from the government. The profits of the corn producer are distributed to consumers.
a) Calculate GDP using the expenditure approach.
Expert Solution
Computation of GDP using Expenditure Approach:
GDP = C+I+G
Here,
C = Consumption Expenditure = 2 millions tons*$50 = $100 million
I = Investment = 0.5 millions tons*$50 = $25 millions
G = Government Expenditure =0.5 millions tons*$50 = $25 millions
GDP = $100 millions+$25 millions+$25 millions = $150 millions
So, GDP using Expenditure Approach is $150 millions.
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