Question

Q. Which of the following statements is incorrectly describing the ratio of trade at market prices to gross domestic product (the trade-to-GDP)?

a. If a country has total export of 5 billion dollars, total import of 3 billion dollars and GDP of 40 billion dollars, the country’s trade-to-GDP is 20%.

b. It is used as a measure of the openness of a country to international trade, and so may also be called the trade openness ratio.

c. The trade-to-GDP ratio tends to be low in countries with large economies and large populations.

d. China has one of the lowest trade-to-GDP ratio because of its large economic size and population.

Answer 1

Ans: China has one of the lowest trade-to-GDP ratio because of its large economic size and population.

Explanation:

Trade-to-GDP ratio = [(Value of export + Value of import) / GDP] * 100

                                = [(5 + 3) / 40] * 100

                                = 20%

Thus, option [a] is correct.

Trade-to-GDP ratio measures the openness of a country to international trade. It is also called the trade openness ratio.

Thus, option [b] is correct.

Keeping other factors as constant, the trade-to-GDP ratio tends to be low in countries with large economies and large populations. For example: United States and Japan has low trade-to-GDP ratio.

Thus, option [c] is correct.

China has one of the highest trade-to-GDP ratio.

Thus, option [d] is incorrectly describing the ratio of trade at market prices to gross domestic product (the trade-to-GDP).