Question 1. Consider the following income statement from a Taiwanese plastics company that produces toys both for the Taiwanese market and the US market. The firm is owned by Taiwanese investors and is located in Taiwan but has some debt to US bondholders.
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Revenues
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US$ 200 (millions)
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Export Sales
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175
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Domestic (Taiwan) Sales
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25
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Costs of Production
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US$ 160
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Local Materials
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30
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Imported Oil
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50
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Local Wages, Salaries
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80
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Depreciation
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US$ 20
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Operating Income
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US$ 20
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Interest to United States Bondholders
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US$ 5
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Taxes
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US$ 0 (On "tax holiday")
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After Tax Profits
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US$ 15
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During the above income statement period, inventories rose by US$ 20 million. Local materials, wages and salaries are paid to Taiwanese citizens or entities. Oil is imported from abroad.. Be careful in that the “G” in GDP means Gross, not Net.
a. Using the value of output approach, measure this firm’s contribution to Taiwanese GDP, Taiwanese GNP, US GDP and US GNP.
b. Taking the value added approach (and assume that it buys materials from another Taiwanese company and oil from abroad), what is this firms value added to GDP.
c. Being careful, identify how this firm’s uses of GDP would be described (i.e., C,,I, G, NX) and make sure that your number matches the value of Taiwanese GDP in (a).
d. Measure this company’s contribution to GDP using the income approach (wages etc.). Be sure your number matches your answer in (a) for Taiwanese GDP.
Question 2: Consider an emerging economy which borrows abroad to finance part of its capital stock. The interest rate, i, which it must pay on its external debt is a constant fraction, .03, of its per capita capital stock, k. This could be considered a use of capital. Other relevant data for the economy are as follows (small letters indicate a per capita variable):
Production: y = √K
Savings rate: s = .20
Pop. Growth: n = .01
Depreciation: dep = .01
a) Determine steady-state per capita capital, k, and per capita income, y and show graphically.
b) Identify per capita interest payments on the external debt in the steady-state.
c) Identify per capita GDP and GNP in the steady-state.
d) What is the growth rate of Total Capital and Total Output in the steady-state?
e) What is the growth of total external debt in the steady-state?