EBK MODERN PRINCIPLES OF MICROECONOMICS
EBK MODERN PRINCIPLES OF MICROECONOMICS
3rd Edition
ISBN: 8220103647816
Author: COWEN
Publisher: YUZU
Question
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Chapter 20, Problem 1FT

Subpart (a):

To determine

Level of export.

Subpart (a):

Expert Solution
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Explanation of Solution

The level of export for each of the last five years of 2000 is tabulated below:

Table 1

YEAR EXPGSCA
1996 986.033
1997 1103.500
1998 1129.281
1999 1159.146
2000 1258.433

From Table 1, it can be inferred that the exports increase every year.

Economics Concept Introduction

Concept introduction:

Export: Export refers to a trading of goods and services from a domestic country to a foreign country.

Subpart (b):

To determine

Level of import.

Subpart (b):

Expert Solution
Check Mark

Explanation of Solution

The level of import for each of the last five years of 2000 is given in Table 2.

Table 2

YEAR IMPGSCA
1996 1100.592
1997 1248.825
1998 1394.798
1999 1536.232
2000 1736.215

From Table 2, it can be inferred that the imports increase every year.

Economics Concept Introduction

Concept introduction:

Import: Import refers to the goods and services that are bought domestically but are produced in foreign countries.

Subpart (c):

To determine

Trade deficit.

Subpart (c):

Expert Solution
Check Mark

Explanation of Solution

The trade deficit is calculated using the following equation:

Trade deficit (or surplus) = ExportImport (1)

Since the value of import is greater than that of exports, a trade deficit exists. Substitute the values in equation (1) to calculate the trade deficit for each year as follows:

Trade deficit (or surplus)2000 = 1258.4331736.215=477.782

The trade deficit for 2000 is 477.782.

Similarly, by substituting the values in equation (1), the trade deficit for each year is calculated and tabulated below:

Table 3

YEAR TRADE DEFICIT
1996 114.559
1997 145.325
1998 265.517
1999 377.086
2000 477.782
Economics Concept Introduction

Concept introduction:

Trade deficit: Trade deficit is the situation where the country imports more goods and services than they export. It is the situation of negative trade balance, which means that the outflows of capital as payments to the imports are higher than the inflow of capital as revenue for the exports.

Subpart (d):

To determine

Trade deficit as a percentage of GDP.

Subpart (d):

Expert Solution
Check Mark

Explanation of Solution

The trade deficit as a percentage of GDP is calculated using the following equation:

Trade deficit as a percentage of GDP = Trade deficitGDP×100 (2)

Substituting the values in equation (2), the trade deficit as a percentage of GDP for each year is calculated as follows:

Trade deficit 2000 = 477.78212559.60×100= 3.80%

The trade deficit as a percentage of GDP for 2000 is 3.80%.

Similarly, substituting values in equation (2), the trade deficit as a percentage of GDP for each of the last five years of 2000 is calculated and tabulated below:

Table 4

Year Trade Deficit GDPSCA Trade Deficit as % Of GDP
1996 114.559 10560.976 1.08%
1997 145.325 11034.850 1.32%
1998 265.517 11525.891 2.30%
1999 377.086 12065.902 3.13%
2000 477.782 12559.660 3.80%

During recessions, that is, in years when the GDP falls from the previous year (starting Dec 2007 to 2009), the trade deficit tends to fall. Based on the information available in the given website, this can be tabulated as follows:

Table 5

Year EXPGSCA IMPGSCA Trade deficit GDPSCA
2007 1646.394 2359.012 712.62 14873.734
2008 1740.825 2298.645 557.82 14830.359
2009 1587.741 1983.177 395.44 14418.738
2010 1776.595 2235.350 458.76 14783.809

The fall in trade deficit in recession may be attributed to a larger fall in imports of consumers and capital goods than in exports. Export is seen as more stable than imports during the recession, as per Table 5.

Economics Concept Introduction

Concept introduction:

Trade deficit: Trade deficit is the situation where the country imports more goods and services than what they export. It is the situation of negative trade balance, which means that the outflows of capital as payments to the imports are higher than the inflow of capital as revenue for the exports.

GDP (Gross Domestic Product): Gross domestic product refers to the value of total goods and services produced in the given period of time, within the boundaries.

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