Question

In: Economics

Consider an island that has two producers: a coconut farm and a restaurant. The coconut farm...

Consider an island that has two producers: a coconut farm and a restaurant. The coconut farm produces coconuts by hiring households on the island to harvest them from trees. It sells some coconuts to households, some coconuts to the restaurant, and some coconuts to the government. It sells $20 million worth of coconuts to the government, $30 million worth of coconuts to households, and $15 million worth of coconuts to the restaurant. It pays $50 million in wages and no taxes, and distributes its profits to the households that own it in the form of dividends. The restaurant uses coconuts and labor hired from households to produce restaurant meals, which it sells to the household. It sells $100 million worth of restaurant meals, pays $35 million in wages, pays $30 million in taxes, and distributes its (after tax) profits to the households that own it in the form of dividends. The government uses the tax revenue it collects to provide national defense by fielding an army. It feeds the soldiers $20 million worth of coconuts and pays them $10 million in wages.

a.) Compute GDP using the value added approach. Show all work.

b.) Compute GDP using the income approach. Show all work.

c.) Compute GDP using the expenditure approach. Show all work.

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Expert Solution

Rahul Sunny answered 1 year ago
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