The island nation of Decoland has only three firms: a paint manufacturer, a furniture producer and a

The island nation of Decoland has only three firms: a paint manufacturer, a furniture producer and a service company providing artists for hire The paint manufacturer produced $16,000 worth of paint, of which $10,000 worth of paint was sold to the consumers and the rest was sold to the furniture producer The artists earned $14,000 from individuals wanting to decorate their houses and $4,000 from the furniture producer who required finishing touches on some of the tables The furniture manufacturer produced $30,000 worth of tables and chairs, all of which were purchased by households of Decoland

a) Calculate GDP in Decoland Explain your answer in terms of the concepts discussed in class (6 points)

b) A neighboring nation suggests that Decoland’s GDP is mostly composed of the interest payments that Decoland’s government makes on the loan borrowed from its citizens Do you find something odd about this statement? Explain briefly in terms of the concepts discussed in class (35 points)

c) Decoland’s citizens have a tradition of only eating the food that is grown in their backyards If Decoland did not have such a tradition and purchased at least some of their food from the marketplace, how would Decoland’s GDP change? Explain briefly in terms of the concepts discussed in class (3 points)

 

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