Economics Assignment: GDP, Exports, Current Account Balance Analysis

This assignment solution delves into key economic indicators such as GDP, exports, and the current account balance, providing a comprehensive analysis of their interrelationships. The solution begins by examining the significance of a country's exports-to-GDP ratio as a measure of globalization, using the US as an example. It then calculates Canada's export ratio based on provided GDP and export figures. Furthermore, the solution determines the percentage of GDP represented by the US current account balance. Finally, the assignment addresses the close relationship between trade balance and the current account balance, explaining the underlying economic principles. The assignment also references relevant economic literature. This assignment provides a clear understanding of key macroeconomic concepts.

Business Principles and Decision Making
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Question 1
a) GDP represents the sum total of the value of all goods and services that are produced within
the nation in a given time. Exports tend to be produced locally but are sent abroad. As a
result, the exports to GDP ratio highlight the importance of exports to the overall economy.
A higher value of this ratio would imply that production significantly caters to the export
market. This ratio for US is 14 percent which implies that 8 percent of the goods and services
are consumed locally highlighting a significant domestic market (Barro, 2016).
b) GDP of Canada is $1,800 billion while exports of Canada are $542 billion.
Taking the above data into consideration, export ratio of Canada = (542/1800)*100 = 30.11%
c) The given data is summarized below.
GDP of USA = $16,800 billion
Current account balance of USA = 400 billion
Percent of GDP to current account balance of USA = (400/16800)*100 = 2.38%
d) In order to outline why trade balance and current account balance are so closely related, it is
imperative to consider their definitions. Trade balance is defined as the difference between
exports and imports of a nation over a given period. For the computation of the current
account balance, one of the starting components is the trade balance to which the
international money flow is added. As a result, since trade balance is a key component of
current account balance, it is but natural that both these indicators tend to be linked for a
given nation (Dombusch, Fischer & Startz, 2015).

References
Barro, J.R. (2016). Macroeconomics (2nded.). New York: MIT Press.
Dombusch, R., Fischer, S. & Startz, R. (2015).Macroeconomics (10thed.). New York: McGraw
Hill Publications.