Question

An economy has two firms, Russell Farms and the Cider Mill. Russell Farms owns orchards. It sells some of its apples to the public, and the rest to the Cider Mill, which produces and sells apple cider. The following table shows their transactions in 2019. (These are two real businesses in the Binghamton area, but the numbers are made-up.) Russell Farms Wages paid to employees $15,000 Taxes paid to governments 5,000 Revenue from apple sales 35,000 Apples sold to the public 10,000 Apples sold to Cider Mill 25,000 The Cider Mill Wages paid to employees $10,000 Taxes paid to government 2,000 Apples purchased from Russell Farms 25,000 Revenue received from sale of apple cider 40,000 Use the expenditure approach, the product approach, and the income approach to calculate economic activities (GDP) in this economy. Show all your calculations.
Explain why the value of GDP in 2012 would or would not change as a result of each transaction described below:
a. In 2012, the Smith family purchases a new house that was built in 2012.
b. In 2012, the Jones family purchases a house that was built in 2001.
c. In 2012, a construction company purchases windows to put in the Smith family home that was built in 2012.
d. In 2012, Mr. Jones paints all of the rooms of the Jones family house purchased in 2009, using paint and supplies purchased in 2012.
e. In 2012, Mr. Smith uses an online brokerage service to purchases shares of stock in a construction company.

Answer 1

Answer:

a. GDP will increase

b. No effect on GDP

c. GDP will increase

d. GDP will increase

e. GDP will rise

Explanation:

Gross domestic product is the total monetary value of all the finished goods produced in the country during a specific period. When a new house is constructed it will create value for the economy and GDP will rise but when an old house is resold again there is no addition in the monetary value so there will be no effect on GDP.