Timber Investments
Macroeconomics GDP Question?
So here’s the question:
Suppose there are two firms in an economy: A and B. A produces timber and sells it to B, which produces and sells tables. Neither firm had any inventory at the beginning of 2000. During that year, A produced enough timber for 50 tables. B bought 70% of that timber for $700 (each table takes $20 worth of timber) and promised to buy the other 30% in 2001. B produced 35 tables in 2000 and sold them for $30 each. What was the economy’s GDP for 2000?
Now here’s what I was doing-
GDP=Y= Consumption + Investment + Gov’t Purchases + Net Export
C= 35×30=1050
I=700
G=0
NX=O
Therefore Y=1050+700=1750?
Please let me know if I’m on the right track and where I need to go and what to do!
Thanks!
The GDP should be calculated based on value added method
= Value of production – cost of raw materials used
For B
Value added = 35*30 – 700 = 350
For A
Value added = 20*50 = 1000
GDP = 1000 + 350 = 1350
Timber investment continues to be a wise option