Question

Consider an economy with a corn producer, some consumers, and a government. In a given year, the corn producer grows 30 million bushels of corn and the market price for corn is $5 per bushel. Of the 30 million bushels produced, 20 million are sold to consumers, 5 million are stored in inventory, and 5 million are sold to the government to feed the army. The corn producer pays $60 million in wages to consumers and $20 million in taxes to the government. Consumers pay $10 million in taxes to the government, receive $10 million in interest on the government debt, and receive $5 million in Social Security payments from the government. The profits of the corn producer are distributed to consumers.
(a) Calculate GDP using
(i) The product approach,
(ii) The expenditure approach,
(iii) The income approach.
(b) Calculate private disposable income, private sector saving, government saving, national saving, and the government deficit.
Is the government budget in deficit or surplus?



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  • CreatedDecember 05, 2014
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