Chapter 20, Problem 1FT

Subpart (a):

To determine

Level of export.

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.

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.

Explanation of Solution

The trade deficit is calculated using the following equation:

$\text{Trade deficit (or surplus) = Export}-\text{Import}$ (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:

$\begin{array}{c}{\text{Trade deficit (or surplus)}}_{2000}\text{ = 1258}\text{.433}-\text{1736}\text{.215}\\ \text{=}-477.782\end{array}$

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.

Explanation of Solution

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

$\text{Trade deficit as a percentage of GDP = }\frac{\text{Trade deficit}}{\text{GDP}}\times 100$ (2)

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

$\begin{array}{c}{\text{Trade deficit }}_{2000}\text{ = }\frac{477.782}{12559.60}\times 100\\ \text{= 3}\text{.80\%}\end{array}$

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.