Consider a two period economy with two firms. MachineInc produces machines and BikeInc produces bikes. In...

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Consider a two period economy with two firms. MachineInc produces machines and BikeInc produces bikes. In each period MachineInc produces 1000 machines and sells them for $100 each to BikeInc. The only input besides labor needed to make a bike is machines. In particular, one machine can be used to produce exactly one bike, after which it breaks down permanently. The price of a bike is $200. 1. Suppose in both periods BikeInc produces 1000 bikes. In the first period it sells 500 bikes to consumers and in the second period it sells 1500 bikes to consumers. Treating machines as intermediate goods, compute GDP of both periods using both the product and the expenditure approach. What is the sum of GDP over both periods? 2. A politician wants to boost total GDP over the two periods in order to help his reelection. He is good friends with the CEO of BikeInc. He ask the CEO to shift the production of 500 bikes from period 1 to period 2. BikeInc continues to buy 1000 machines in each period. Treating machines unused in period 1 as a capital good, compute GDP of both periods, using both the product and the expenditure approach. What is the sum of GDP over both periods? 3. Now rename MachineInc and BikeInc into MilkInc and CheeseInc. Repeat part 2., but treat milk not made into cheese in period 1 as inventory investment. Does the scheme of the politician still work? Consider a two period economy with two firms. MachineInc produces machines and BikeInc produces bikes. In each period MachineInc produces 1000 machines and sells them for $100 each to BikeInc. The only input besides labor needed to make a bike is machines. In particular, one machine can be used to produce exactly one bike, after which it breaks down permanently. The price of a bike is $200. 1. Suppose in both periods BikeInc produces 1000 bikes. In the first period it sells 500 bikes to consumers and in the second period it sells 1500 bikes to consumers. Treating machines as intermediate goods, compute GDP of both periods using both the product and the expenditure approach. What is the sum of GDP over both periods? 2. A politician wants to boost total GDP over the two periods in order to help his reelection. He is good friends with the CEO of BikeInc. He ask the CEO to shift the production of 500 bikes from period 1 to period 2. BikeInc continues to buy 1000 machines in each period. Treating machines unused in period 1 as a capital good, compute GDP of both periods, using both the product and the expenditure approach. What is the sum of GDP over both periods? 3. Now rename MachineInc and BikeInc into MilkInc and CheeseInc. Repeat part 2., but treat milk not made into cheese in period 1 as inventory investment. Does the scheme of the politician still work?