Consider the first row of Figure 7-2 and suppose you mistakenly believed that total value added was
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Consider the first row of Figure 7-2 and suppose you mistakenly believed that total value added was $30,500, the sum of the sales price of a car and a carʼs worth of steel. What items would you be counting twice?
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Value of sales Intermediate goods Wages Interest payments Rent Profit Total expenditure by firm Value added per firm Value of sales - Cost of intermediate goods 2. Aggregate spending on domestically produced final goods and services = $21,500 National National Ore, Inc. Steel, Inc. $4,200 (iron ore) 0 2,000 1,000 200 1,000 4,200 4,200 $9,000 (steel) FIGURE 7-2 Calculating GDP 4,200 (iron ore) 3,700 600 300 200 9,000 4,800 National Total factor income Motors, Inc. $21,500 (car) 9,000 (steel) 10,000 1,000 500 1,000 21,500 12,500 1. Value of production of final goods and services, sum of value added = $21,500 $15,700 2,600 1,000 2,200 3. Total payments to factors = $21,500 Krugman/Wells, Economics, 6e, 2021 Worth Publishers
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