Suppose There Are Only Two Firms in an Economy: Rolling

question 82

Multiple Choice

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp,Inc. ,which uses the rawhide to produce and sell dog chews.With each $1 worth of rawhide that it buys from Rolling Rawhide,Chewy Chomp,Inc.produces a dog chew and sells it for $2.50.Neither firm had any inventory at the beginning of 2014.During that year,Rolling Rawhide produced enough rawhide for 2000 dog chews.Chewy Chomp,Inc.bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015.Chewy Chomp,Inc.produced 1800 dog chews during 2014 and sold each one during that year for $2.50.What was the economy's GDP for 2014?

• A)$3,800
• B)$4,500
• C)$4,700
• D)$5,000

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Definitions:

Fair Value Hedge

A hedging strategy aimed at protecting against the risk of changes in the fair value of an asset, liability, or an identified portion of such, that is attributable to a particular risk.

Foreign Exchange Risk

The potential for loss due to fluctuations in currency exchange rates affecting the value of foreign-denominated transactions and investments.

Mexican Pesos

The currency of Mexico, represented symbolically as MXN and used in financial transactions within the country.

Forward Contract

An individualized agreement allowing two parties to trade an asset at an agreed-upon price on a specified future date.