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Chapter 10: Q. 30 (page 266)

What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?

Short Answer

Expert verified

Size of domestic economy, geographical location and history of trade patterns.

Step by step solution

01

Step1. Introduction

GDP refers total value of all the goods and services which are produced within the domestic boundary of the economy.

The level of trade is expressed as the part of or percentage of the total GDP which comprises of Exports.

02

Step2. Explanation

The three factors on which the size of the level of trade depends are:

1. Size of domestic economy: When the size of the economy is very large, they tend to trade most of the products internally as the aggregate demand is high enough to absorb all the production.

2. Geographical Location: If an economy is located near large economies, the level of trade increases due to reduced cost of transportation and ease.

3. History of trade patterns and relationships: If the economy has a history of trade, it shall continue to till today have a high level of trade.

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Most popular questions from this chapter

Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.

a. Living in an especially large country

b. Having a domestic investment rate much higher than the domestic savings rate

c. Having many other large economies geographically nearby

d. Having an especially large budget deficit

e. Having countries with a tradition of strong protectionist legislation shutting out imports

Table 10.7 provides some hypothetical data on

macroeconomic accounts for three countries represented

by A, B, and C and measured in billions of currency

units. In Table 10.7, private household saving is SH,

tax revenue is T, government spending is G, and

investment spending is I.


ABC
SH700500600
T00500500
G600350650
I800400450

Table 10.7 Macroeconomic Accounts

a. Calculate the trade balance and the net inflow of

foreign saving for each country.

b. State whether each one has a trade surplus or

deficit (or balanced trade).

c. State whether each is a net lender or borrower

internationally and explain.

A government official announces a new policy.

The country wishes to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why such a statement is contradictory.

The GDP for the United States is \(18,036billion and its current account balance is -\)484billion. What percent of GDP is the current account balance?

What determines the size of a country’s trade deficit?
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