Question

Suppose country A has a GDP of $10 billion and country B has a GDP of $2 billion. If we assume that there are only two countries A and B in the world and that the coefficient of B can be approximated by the inverse of the world GDP, approximately what volume of trade is predicted to occur between the two countries if they are both 500 miles apart and our uncertainty parameter is given by 1.5. Suppose instead that country B had a GDP of $12 billion. What volume of trade is predicted to occur between the two countries? Provide a plausible reason for this difference.

Answer 1

If the conutry B has GDP of $12 billion and the country A has a GDP of $10 billion than the both the country are come under developing nation in the world and the both the country wants to export the goods to each other as both the country is 300 miles apart and our uncertainty parameter is given by 1.5. and in real the GDP of country A has $10 billion and the country B has a GDP of $ 2 Billion. The volume of trade is perdicted to occur between the two country is country has large number of employement rate and having good resources and having good development stategy the country A want to export more as a developing country the main motive is to export more istead of import.

The country B will Export more goods and service to achieve the GDP of $12 billion and due to that the good and service produce inside the country will export to the country A so that the money flow inside the country A will come in the country by exporting the good and service to country A.

There is number of difference reason for the developing and deveoped country are classified of countries based on the economic status such as GDP, GNP, per capita income, industralization the standard of living, etc. Developed countries refers to the soverign state, whose economy has highly progressed and possesses great technological infrastructure, as compared to other nation.

Country with low industrialization and low human development index are have low GDP and the uncertanity reason are lack of standard of living there per capita income of the economy is less and the unemloyment level is high, there is high mortality rate living condition is moderate.