Posted: February 28th, 2023



Consider an economy with three firms: 

• Firm 1 sells $75 of steel to Firm 3. From its earnings, it pays $25 in wages and keeps $50 in profits.

 • Firm 2 sells $30 of rubber to Firm 3. Firm 2 pays $10 in wages and keeps $20 in profits. 

• Firm 3 sells $240 of cars to households. It pays for its inputs (from Firm 1 and Firm 2); keeps one third of its remaining earnings as profits,and pays two thirds in wages. Let’s calculate GDP various ways. 

(b)  Calculate GDP as the sum of value added. 

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