Hello everyone. Hopefully I'm posting in the right section. I am currently studying for an ecomomics test I have and there is a question which I'm not sure if I'm doing correctly.
The Question:
Derive the increase in GDP and in Net Domestic Income if the following activities were to occur in Country A. This year Country A imported 100 additional computers at an import price of $3,000 each. Fifty of the computers were sold to consumers in Country A for $4,000 each [the mark-up was represented by sales commissions of $600, corporate profits before taxes of $300 and indirect taxes [sales taxes] of $100]. Country A exported 30 of these computers at an export price of $3,500 [the mark-up being divided between sales commissions of $400 and corporate profits of $100]. The final 20 computers were left in inventory at their import price. In addition, calculate the specific changes in each affected component in the final goods statement [only] for Country A for the year as a result of this set of economic transactions e.g., changes in consumption, exports etc.. Show all your work!
Answer:
First I figured that I need to use one of the 3 approaches to calculate the GDP. There's the sum of final goods and services approach (expenditure), then factor income approach and finally the value added approach. The only equation I'm sure off and the one I think fits in this situation is the expenditure approach which is:
GDP = Consumption + Investment + Government Purchases + (Exports-Imports).
These are the numbers I concluded:
C= $200,000 since 50 computers were sold @ $4000/each
I=$60,000 since 20 computers were left in storage valued at $3000/each
G=$5,000 since $100 sales taxes from 50 computers sold
Net exports=-$195,000 since imports were 100x3000=$300,000 while exports were 30x3500=$105,000 so 105,000-300,000=$-$195000
So plugging all this into the formula would be:
$200,000+$60,000+$5,000+(-$195,000)=$70,000
Therefore I would conclude that the increase in GDP woulb be $70,000.
However I know that something is incorrect and I'm probably missing like 50% of the other questions. I don't understand how I'm suppose to use the profits and commisson they give me. How do I find the Net Domestic Income? How do I "calculate the specific changes in each affected component in the final goods statement"?
I don't think the question is that complicated its just that there are soo many numbers and questions going on that it confuses me. I hope someone can clarify any part of this problem or give me some tips to answer it more easily.
THANKS!