Calculation of gdp using three different approaches

Reference no: EM1313997

Consider the following economy, which has three firms: Software.com; FastCar, Inc., and Integrated Steel. Software.com pays wages of $50 million to employees to design and distribute software. This firm has no costs other than labour. It sells $60 million of software to households and $40 million of software to FastCar, Inc. Integrated Steel owns iron mines and produces steel using iron from its mines. Its only cost is wages of $25 million. It produces $35 million of steel and sells all of this steel to FastCar, Inc. FastCar, Inc. pays $50 million to workers who use the $35 million of steel and the $40 million of software to produce cars. FastCar, Inc. sells all of its cars to households for a total of $130 million.

a. Assume that software purchases by businesses are treated as expenses, as they were before November 1999. Calculate GDP using three different approaches: expenditure approach, income approach, and product approach.

b. Now assume that software purchases by business are treated as investment, as they have been since November 1999. Calculate GDP using three different approaches: expenditure approach, income approach, and product approach.

Reference no: EM1313997

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