1. Calculate the profits made by both firms and transferred to households. Use this information to calculate nominal GDP using the production approach, the expenditure approach, and the income approach.

2. Now suppose that the first farm stops making sausages. It still produces and sells corn, hires, and pays workers and taxes in the same amounts as before. Now, households directly buy pigs from the second farm for $15,000 and produce sausages at home. All other transactions remain the same. Repeat question 1 and then explain the difference (if any) in your answer.

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The country of Farmville has two farms. One farm sells corn to households and the other farm, and sausages to households (for which it buys and slaughters pigs from the other farm). The other farm raises and sells pigs. The government of Farmville collects taxes to pay the librarian of the public library. Households work on both farms and in the library, earning wages, and buy corn and sausages from the first farm. The transactions are described by the following tables. Table I: Farm 1 Sales of Corn Sales of Sausages Purchases of Pigs Wages Taxes Table II: Farm 2 Sales of Pigs Purchases of Corn Wages Taxes $10,000 $20,000 $15,000 $5,000 $5,000 $15,000 $5,000 $6,000 $4,000 Table III: Government Tax Revenue Wages of Librarians $12,000 $12,000 Table IV: Households Wage Income Profits Received from Firms Income Taxes Paid $23,000 $? $3,000 The country of Farmville has two farms. One farm sells corn to households and the other farm, and sausages to households (for which it buys and slaughters pigs from the other farm). The other farm raises and sells pigs. The government of Farmville collects taxes to pay the librarian of the public library. Households work on both farms and in the library, earning wages, and buy corn and sausages from the first farm. The transactions are described by the following tables. Table I: Farm 1 Sales of Corn Sales of Sausages Purchases of Pigs Wages Taxes Table II: Farm 2 Sales of Pigs Purchases of Corn Wages Taxes $10,000 $20,000 $15,000 $5,000 $5,000 $15,000 $5,000 $6,000 $4,000 Table III: Government Tax Revenue Wages of Librarians $12,000 $12,000 Table IV: Households Wage Income Profits Received from Firms Income Taxes Paid $23,000 $? $3,000

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1 Farm 1 10000 20000 15000 5000 5000 5000 Farm 2 15000 5000 6000 4000 0 Households 5... View the full answer