Chapter 1, Problem 2NP

(a)

To determine

To calculate the following ratios for the past three years:

1. Export to GDP
2. Import to GDP
3. Trade imbalance to GDP

To analyze the trend of the calculated ratios.

Explanation of Solution

It is important for economists to identify the trends of important economic calculations over the years.

By doing so, they are able to make necessary predictions as well as to take important decisions on the economic as well as other matters that are relevant to a country.

The gross domestic product, imports, and export are some examples of aforesaid important calculations. With the use of these ratios, an economy could decide upon the future of its foreign trade.

Exports to GDP ratios for the years 2016, 2017 & 2018 are as follows:

2016:

  $\begin{array}{c}\text{Exports}\text{to}\text{GDP}\text{}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}}{\text{Nominal}\text{GDP}}\\ =\frac{2220.609}{18715.040}\\ =0.118\\ \text{Exports}\text{to}\text{GDP}\text{}\text{ratio}=0.118:1\end{array}$

2017:

  $\begin{array}{c}\text{Exports}\text{to}\text{GDP}\text{}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}}{\text{Nominal}\text{GDP}}\\ =\frac{2356.726}{19519.424}\\ =0.120\\ \text{Exports}\text{to}\text{GDP}\text{}\text{ratio}=0.120:1\end{array}$

2018:

  $\begin{array}{c}\text{Exports}\text{to}\text{GDP}\text{}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}}{\text{Nominal}\text{GDP}}\\ =\text{}\frac{2510.250}{20580.223}\\ =\text{}0.121\\ \text{Exports}\text{to}\text{GDP}\text{}\text{ratio}=0.121:1\end{array}$

Exports to GDP ratio have shown an increasing trend over the three years. However, the said increment is a slow-paced one, with the figures changing slightly from the previous year’s ones.

Imports to GDP ratios for the years 2016, 2017 & 2018 are as follows:

2016:

  $\begin{array}{c}\text{Imports}\text{}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{2739.415}{18715.040}\\ =0.146\\ \text{Imports}\text{}\text{to}\text{GDP}\text{ratio}=0.146:1\end{array}$

2017:

  $\begin{array}{c}\text{Imports}\text{}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{2932.062}{19519.424}\\ =0.150\\ \text{Imports}\text{}\text{to}\text{GDP}\text{ratio}=0.150:1\end{array}$

2018:

  $\begin{array}{c}\text{Imports}\text{}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{3148.464}{20580.223}\\ =0.152\\ \text{Imports}\text{}\text{to}\text{GDP}\text{ratio}=0152:1\end{array}$

The imports to GDP ratio also show an increasing pattern over the three years. This means the amounts imported as a proportion of the GDP has grown over the years.

The trade imbalance to GDP ratios for the years 2016, 2017 and 2018 are as follows:

2016:

  $\begin{array}{c}\text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}\text{-}\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{2220.609-2739.415}{18715.040}\\ =0.0277\\ \text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}=0.0277:1\end{array}$

2017:

  $\begin{array}{c}\text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}\text{-}\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{2356.726-2932.062}{19519.424}\\ =0.0294\\ \text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}=0.0294:1\end{array}$

2018:

  $\begin{array}{c}\text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Nominal}\text{Exports}\text{-}\text{Nominal}\text{Imports}}{\text{Nominal}\text{GDP}}\\ =\frac{2510.250-3148.464}{20580.223}\\ =0.0310\\ \text{Trade}\text{imbalance}\text{to}\text{GDP}\text{ratio}=0.0310:1\end{array}$

The trade imbalance is the difference between the exports and imports of a given year. One could identify an upward trend in the trade imbalance to GDP ratio over the three years.

The trade imbalance widening year to year could be seen as the reason for this increasing trend.

(b)

To determine

To calculate the following ratios for the past three years:

1. Federal government receipts to GDP
2. Federal government expenditure to GDP
3. Budget deficit to GDP

To analyze the trend of the calculated ratios.

Explanation of Solution

In making important decisions as well as predictions pertaining to an economy, many important calculations are considered by economists and policymakers.

The federal government’s receipts and expenditure figures that determine the budgetary aspects of an economy are some of such important calculations.

By identifying the patterns of these figures, the future direction of the concerned areas could be decided upon.

The federal government receipts to GDP ratios for the years 2016, 2017 and 2018 are as follows:

2016:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Government}\text{Receipts}}{\text{Nominal}\text{GDP}}\\ =\frac{13841.352}{18715.040}\\ =0.739\\ \text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}=0.739:1\end{array}$

2017:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Government}\text{Receipts}}{\text{Nominal}\text{GDP}}\\ =\frac{14105.726}{19519.424}\\ =0.722\\ \text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}=\text{}0.722:1\end{array}$

2018:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Government}\text{Receipts}}{\text{Nominal}\text{GDP}}\\ =\frac{13990.602}{20580.223}\\ =0.679\\ \text{Federal}\text{Government}\text{Receipts}\text{to}\text{GDP}\text{Ratio}=0.679:1\end{array}$

The federal government receipts to GDP ratio have shown a downward trend over the three years. This means that the amounts received by the government via various sources have decreased throughout the period of concern.

The federal government expenditure to GDP ratios for the years 2016, 2017 and 2018 are as follows:

2016:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Governement}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{16549.498}{18715.040}\\ =0.884\\ \text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}=0.884:1\end{array}$

2017:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Governement}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{17004.585}{19519.424}\\ =0.871\\ \text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}=0.871:1\end{array}$

2018:

  $\begin{array}{c}\text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}\text{=}\frac{\text{Federal}\text{Governement}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{18029.621}{20580.223}\\ =0.876\\ \text{Federal}\text{Government}\text{Expenditure}\text{to}\text{GDP}\text{Ratio}=0.876:1\end{array}$

The federal government expenditure figures over the three years have not shown a uniform pattern. In the second time period, it has increased and dropped again in the third time period.

The budget deficit to GDP ratios for the years 2016, 2017 and 2018 are as follows:

2016:

  $\begin{array}{c}\text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Current}\text{Receipts}\text{-}\text{Current}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{2708.146}{18715.040}\\ =0.144\\ \text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}=0.144:1\end{array}$

2017:

  $\begin{array}{c}\text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Current}\text{Receipts}\text{-}\text{Current}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{2898.859}{19519.424}\\ =0.148\\ \text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}=0.148:1\end{array}$

2018:

  $\begin{array}{c}\text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}\text{=}\frac{\text{Current}\text{Receipts}\text{-}\text{Current}\text{Expenditure}}{\text{Nominal}\text{GDP}}\\ =\frac{4038.959}{20580.223}\\ =0.196\\ \text{Budget}\text{deficit}\text{to}\text{GDP}\text{ratio}=0.196:1\end{array}$

The budget deficit over the years has grown, making the budget deficit to GDP ratio also increase with time.