Question

Suppose a closed economy. Suppose there are a farmer, a baker and the consumers residing in this economy. Flour and bread are the only things produced. The farmer produces flour that is worth $100,000. The baker buys $80,000 worth of flour to make bread and the consumers buy $20,000 worth of flour directly from the farmer. The baker bakes bread that is worth $120,000 and sells those to the consumers. The farmer hires consumers and pays $15,000 in wages; the baker pays $10,000 in wages. The government collects $5,000 of tax from the farmer, $6,000 from the baker and $3,000 from the consumers. The government also spends $14,000 to hire consumers to operate the government.

Required:

a. How much is the total spending on all final goods and services produced?

Answer 1

The total spending on all final goods and services produced is equal to $154,000.

Step-by-step explanation:

The total spending on all final goods and services produced can be calculated as follows:

Total spending = Amount paid by consumers to farmer for flour + Amount paid by consumers to baker for bread + Government spending on hiring consumers ...................... (1)

Where;

Amount paid by consumers to farmer for flour = $20,000

Amount paid by consumers to baker for bread = $120,000

Government spending on hiring consumers = $14,000

Substituting the values into equation (1), we have:

Total spending = $20,000 + $120,000 + $14,000 = $154,000

Therefore, the total spending on all final goods and services produced is equal to $154,000.