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  3. exercise 3 a simple economy consider an economy with three...

Question: exercise 3 a simple economy consider an economy with three...

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Exercise 3. A simple economy. Consider an economy with three domestic agents: Ann, Bill and Carl. And a foreign economy with a representative agent Fer.

  • Ann owns land and uses the trees in their yard for wood. She cuts down the trees and sells the wood.

  • Bill owns a firm that buys wood and build and sell tables.

  • Carl is a retired agent that has some wealth.

  • There is no government.

  • During the year the following transactions happen:

o Ann sold 700 pounds of wood at price $10/pound. The other 300 pounds are kept as inventory of the firm.

o Bill bought 500 pounds of wood, produced and sold 100 tables at price $500/table.

o Fer bought 30 tables from Bill and 200 pounds of wood from Ann.
o The domestic agents (A, B & C) bought 70 tables from the firm owned by Bill.
o Bill’s capital depreciated by $1000.

Calculate GDP for this economy and do the income decomposition (Wages, Taxes, Net Profits, Depreciation).

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