1 pts Question 1 Questions 1 to 8 refer to the following sce

1 pts Question 1 Questions 1 to 8 refer to the following scenario (this is taken from sample test 1) The following transactions occurred in a given year. Firm A manufactures leather using a factory valued at $20,000. Suppose Firm A produced $2.000 worth of leather and incurred the following costs: $1,000 for the salaries of workers, $100 for interest payments on a bank loan, and taxes of $200. Firm A sold all of its leather to Firm B, which is a manufacturer of luxury bags. Suppose Firm B produced four bags at a cost of $800 each. The cost of each bag consisted of paying for $500 worth of raw materials, paying for the salaries of workers for $200, and $100 in taxes. Firm B has a factory valued at $30,000. Firm B sold to the public three of its four bags for $1,000 each. What is the value-added of Firm A? O 2,000 2500 3000 O 3500 Question2 1 pts What is the value-added of Firm B? O 500 1,000 O 1,500 1,800

Solution

1) The correct answer to this question is $2000.

Firm A has produced leather worth of $2000 from maybe animal skin or hides whose value without the value added was nothing. They basically did the whole value addition of $2000 to a product. (All the cost incurred by Firm A in production of leather will be intermediate and will not be considered while calculating GDP).

2) The correct answer to this question is \"B\" $1000.

Firm B made bags out of those leather and sold three of them at a cost of $1000 each. Adding the value of $1000 on the leather of $2000.

3) $3000, overall contribution to GDP using the value-added method is $3000. (one unsold bag will not be calculated in the GDP)

4) Firm A got an income of $2000.

5) Total ascribed income of Firm B is $2000. (Out of which $1000 is still unearned)

6) $3000

7) value of bag sold to public $3000

Value of unsold bags $1000

8) $3000 (GDP is same if we are using the income approach, expenditure approach or value addition approach)