Question

ABC Computer Company has a factory in Silicon Valley. During the current year ABC builds worth of computer components. ABC's costs are labor, $1,000,000; interest on debt, $100,000; and taxes, S200,OOO.
ABC sells all its output to XYZ Supercomputer. Using ABC's components, XYZ builds four supercomputers at a cost of $800,000 each ($500,000 worth of components, $200,000 in labor costs, and SIOO,OOO in taxes per computer). XYZ has a $30,000,000 factory. XYZ sells three of the supercomputers for $1,000,000 each. At year's end, it had not sold the fourth. The unsold computer is carried on XYZ's books as an $800,000 increase in inventory.

a. Calculate the contributions to GDP of these transactions, showing that all three approaches give the same answer.
b. Repeat part (a), but now assume that, in addition to its other costs, ABC paid S500,OOO for imported computer chips.

Answer 1

Answer:

a) 3,800,000

b) 3,300,000

Explanation:

The GDP only counts final products.

As XYZ purchase ABC production thus, ABC's production should not be included in the GDP

Final goods Production:

XYZ 1,000,000 x 3 sold computer =   3,000,000

         1 compuer of 800,000 in stock 8,000,000

           Total GDP                                   3,800,000

Income:

Labor:   1,000,000 + 200,000 x 4 =   1,800,000

Interest   100,000                                   100,000

Taxes      200,000 + 100,000 x 4  =      600,000

Profit       700,000  + 200,000 x 3 =   1,300,000  

Total                                                    3,800,000

If there is imported goods for 500,000

Then, we should reduced from the GDP:

making it 3,800,000 - 500,000 = 3,300,000