Question

In: Economics

A farmer pays $0.20 for seed that he uses to grow wheat which he sells to...

  1. A farmer pays $0.20 for seed that he uses to grow wheat which he sells to the miller for $0.40; the miller makes wheat flour and sells it to the baker for $0.60. The baker makes bread and sells it to the grocery store for $0.80 and the store sells it to the consumer for $1.00. The total contribution to the Gross Domestic Product (GDP) from all these transactions is

    A.

    $3.00
    B.

    $2.00
    C.

    $1.00
    D.

    $0.20

    2-   

    There has been some concern in the United States that people are NOT saving enough. This is a concern because

    A.

    decreases in saving lead to increases in innovation.
    B.

    decreases in saving lead to decreases in investment.
    C.

    decreases in saving lead to decreases in labor productivity.
    D.

    decreases in saving lead to increases in consumption in the futur

Solutions

Expert Solution

Question1:-

A farmer pays $0.20 for seed that he uses to grow wheat which he sells to the miller for $0.40; the miller makes wheat flour and sells it to the baker for $0.60. The baker makes bread and sells it to the grocery store for $0.80 and the store sells it to the consumer for $1.00. The total contribution to the Gross Domestic Product (GDP) from all these transactions is

Ans:- c) $1.00

Reason:- Gross domestic product refers to the market value of all the final goods and services that are produced in the economy within a given period of time. In the given situation, seeds used by farmer is the intermediate good, then wheat used by miller to make wheat flour is also considered as intermediate good, when the baker make bread then wheat flour is the intermediate good . So only the amount paid by the consumer will be considered a payment for final good and will be included in GDP. And the sale of wheat, flour, and bread will contribute indirectly.

Question 2 :-

There has been some concern in the United States that people are NOT saving enough. This is a concern because

Ans :- b) decrease in saving leads to decrease in investment.

Reason:- Low savings indicates that the consumers are spending much more than they save. This indicates that there are not sufficient funds for investment due to which economy might suffer.

Rahul Sunny answered 1 year ago
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