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Understanding Gross Domestic Product and its relation to imports and exports

## What is Gross Domestic Product and how is it calculated?

Countries measure the health of their economies in many ways such as unemployment rates, consumer confidence, and Gross Domestic Product (GDP). Gross Domestic Product is a measurement of the amount of goods produced by a country in one year. If that number increases, our economy is growing, whereas a decrease would indicate a shrinking economy. To calculate expenditure GDP we add up all of the groups who buy goods in the economy (GDP = C + I + G + Xn). The variable â€˜Câ€™ stands for consumption, or consumer spending. The letter â€˜Iâ€™ is the variable for investment or business spending. â€˜Gâ€™ is the variable for government spending. Finally, â€˜Xnâ€™ is the variable for â€˜net exportsâ€™ which is calculated as exports minus imports. To reiterate, we have calculated expenditure GDP by adding together spending by the four groups that buy goods and services; consumers, businesses, government and the foreign sector.

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Therefore, changes in both imports and exports would affect GDP. If exports increase, net exports (Xn) would increase, and thus GDP would increase. If imports increase, net exports would decrease (Xn = X â€“ IM), causing GDP to go down. Therefore, exports are good for a countries economy and imports are detrimental.Â

Globalization has resulted in the inter connectivity of countries. Canada is interested in who they export to as those exports improve our economy. The amount a country buys from Canada depends on a number of factors including how healthy the economy is of our trading partner.

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1.Net exports is calculated by subtracting imports and exports. What factors would affect net exports?

2.A country can calculate its trade balance with another country by subtracting imports from that country from exports to that country. Â A trade balance can also be calculated for a country in comparison to the rest of the world. What is the trade balance between Canada and the U.S.? Canada and China? Canada and Mexico? Conduct some research and determine the trade balance between Canada and the rest of the world.

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3.The world is more interconnected than ever before. Even though Canada does not have a large trade volume with India (exports to India of \$3.31B and imports of \$3.96B), one of Canadaâ€™s main trading partner, China, does have a healthy trade volume with India. Why would Canada be concerned about the health of Indiaâ€™s economy?