Assume an economy with a coal producer, a steel producer, and some consumers (there is no government). In a given year, the coal producer produces 15 million tons of coal and sells it for $5 per ton. The coal producer pays $50 million in wages to consumers. The steel producer uses 25 million tons of coal as an input into steel production, all purchased at $5 per ton. Of this, 15 million tons of coal comes from the domestic coal producer and 10 million tons is imported. The steel producer produces 10 million tons of steel and sells it for $20 per ton. Domestic consumers buy 8 million tons of steel, and 2 million tons are exported. The steel producer pays consumers $40 million in wages. All profits made by domestic producers are distributed to domestic consumers.
(a) Determine GDP using
(i) The product approach,
(ii) The expenditure approach,
(iii) The income approach.
(b) Determine the current account surplus.
(c) What is GNP in this economy? Determine GNP and GDP in the case where the coal producer is owned by foreigners, so that the profits of the domestic coal producer go to foreigners and are not distributed to domestic consumers.

  • CreatedDecember 05, 2014
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