# An economy produces three goods: houses, guns, and apples. The price of each is \$1….

An economy produces three goods: houses, guns, and apples. The price of each is \$1. For the purposes of this problem, assume that all exchange involving houses involves newly constructed houses.

(a) Households buy 10 houses and 90 apples, eating them. The government buys 10 guns. There is no other economic activity. What are the values of the different components of GDP (consumption, investment, government spending, exports/imports)?

(b) The next year, households buy 10 houses and 90 apples. The government buys 10 guns. Farmers take the seeds from 10 more apples and plant them. Households then sell 10 apples to France for \$1 each and buy 10 bananas from Canada for \$2 each, eating them too. What are the values of the components of GDP?

(c) Return to the economy in part 1a. The government notices that the two richest households consume 40 apples each, while the ten poorest consume one each. It levies a tax of 30 apples on each of the rich households, and gives 6 apples each to the 10 poorest households. All other purchases by households and the government are the same as in

(
a). Calculate the components of GDP.

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