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Acme Steel Works produces 2000 tons of pig iron worth $20 per ton. It puts 500 tons of pig iron...

Question:

Acme Steel Works produces 2000 tons of pig iron worth $20 per ton. It puts 500 tons of pig iron into storage for next year and uses the rest (1500 tons of pig iron) to produce 1000 tons of steel worth $60 per ton. The entire production of steel is then sold. Overall Acme pays wages of $25,000, it buys $20,000 worth of coal, which is also needed in production and pays $3,000 in taxes. Acme's contribution to GDP is:

a. $100,000

b. $67,000

c. $70,000.

d. $40,000.

e. $20,000.

f. $50,000

Calculating GDP

GDP is the gross domestic product, which is the value of final goods and services produced in an economy in a given period. There are three approaches to calculate GDP: Income approach in which income generate with in the country in a given period is calculated. Production approach, in this the value of final output produced is calculated. Expenditure approach, in this expenditure on final good and services is calculated.

Answer and Explanation:

option d. 40,000

{eq}\begin{align*} {\rm{Income}} =& 100000 - 20000 - 25000 - 40000 - 3000\\ =& 15000 \end{align*}{/eq}

With income approach:

GDP = compensation of employees + gross operating surplus + gross mixed income + taxes less subsidies on production and imports.

{eq}\begin{align*} {\rm{Corporate \ profits }} =& {\rm{income}} + {\rm{wages}} + {\rm{taxes}}\\ =& 12000 + 25000 + 3000\\ =& 40,000 \end{align*}{/eq}

Hence the Acme's contribution to GDP is 40,000


Learn more about this topic:

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Gross Domestic Product: Using the Income and Expenditure Approaches

from Economics 102: Macroeconomics

Chapter 4 / Lesson 2
31K

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