Imports and GDP
Imports and GDP
Have you ever go to New York for vacation, buy a Hyundai (Korean Manufacturer) car or buying an Acer (Taiwan Manufacturer) computer. Have you consider that this transaction will affect the GDP for Canada. By definition, Imports are the purchase of goods produced in the rest of the world by firms and households in Canada. (Parkin & Bade, p. 700) Canada have to imports because Canada import products whose world price is less than the price that would rule domestically if there were no foreign trade. These mean the world price of a goods or services is below the Canadian no-trade price, so that, at the price ruling in Canada, domestic demand over domestic supply is met by imports. (Lipsey p.81)
Imports of goods and services are determined by the foreign exchange rate. Other things remaining the same, the higher the value of the Canadian dollar against other currencies, the larger is the quantity of Canadian imports. (Parkin & Bade p.700) To define the commodity is non-merchandise good; we only consider the service sector from the services and goods. For an example: Banking service with foreign bank, courier transportation services to foreign country were the imports of goods and services (non-merchandise good). Services are the intangible things that satisfy a want. (James p. G14) Real GDP also determinant the imports. Other things remaining the same, the higher the level of Canadian real GDP, the larger is the quantity of Canadian imports. The transaction with the rest of the world, we have to look at the net export, it equals exports of goods and services to the rest of the world minus imports of goods and services form the rest of the world. (Parkin & Bade p.626)
To find the relationship between the GDP at market price and Imports of goods and services, it may use the expenditure approach to calculate the aggregate income. Aggregate income or expenditure is equal to the GDP at market price while GDP = Y. This equality occurs because Canada can paid to the factors of production or as the expenditure on that output (Parkin & Bade p.627) Since Y=C+I+G+NX, so GDP=C+I+G+(Ex-Im). (Lipsey p.426) Imports are the leakages from the circular flow of income and expenditure are income that is not spent on domestically services. From the equation, generally the other things remaining the same the higher the import will bring the less GDP. However, from...