Question

Assume an economy where there are two producers: a wheat producer and a bread producer. In a given year, the wheat producer grows 30 million bushels of wheat of which 25 million bushels are sold to the bread producer at $3 per bushel, and 5 million bushels are stored by the wheat producer to use as seed for next year’s crop. The bread producer produces and sells 100 million loaves of bread to consumers for $3.50 per loaf. Determine GDP in this economy dur- ing this year using the product and expenditure approaches.

Answer 1

Answer:

365 million

Explanation:

The GDP calculation using the product and expenditure approaches can be summarized in

GDP=C + I + G +NX

where C is the consumption, I is investment, G government expenditures, and NX net exports. Since this problem doesn't have G or NX we can simplify the above equation to

GDP=C + I

Then

1. Consumption (c). Consumers buy 100 million loaves of bread at 3.50, so C=100x3.5=350

2. Investment. Producers "save" 5 million bushels that are valued at 3. So he's investing on those. The value is I=3x5=15.

So the

GDP=350+15=365 million