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 has to imports because Canada imports products whose world price is less than the price that would rule domestically if there were no foreign trade. This means the world price of 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 number of Canadian imports. (Parkin & Bade p.700)
To define the commodity as non-merchandise good; we only consider the service sector from the services and goods. For example, Banking services with foreign banks, courier transportation services to foreign countries were the imports of goods and services (non-merchandise goods). Services are the intangible things that satisfy a want. (James p. G14) Real GDP also a determinant the imports. Other things remaining the same, the higher the level of Canadian real GDP, the larger is the number 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 from 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.
Prices start at $12
Prices start at $11
Prices start at $14
Prices start at $12
Aggregate income or expenditure is equal to the GDP at market price while GDP = Y. This equality occurs because Canada can be 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 domestic services. From the equation, generally, the other things remaining the same the higher the import will bring the less GDP. However, from the graph (Imports of goods and services and GDP at market price), we can see that both graphs only have the expansion and peak time without facing the contraction in any year from 1981 to 1993. This means it is a speedup in the pace of economic activity at that period (Parkin & Bade p.612). The conflict between the graph and the equation may due to a large amount increase in either consumption (C), investment (I), Government expenses (G), or Export of goods and services (Ex).
Both graphs show that it has a slight increase in 1981 to 1982 because of the 1982 recession and low inflation rate at that period of time. After 1983, both graphs have the constant larger amount increase up to 1989 since the real GDP has a rapid growth and it enables the Canadian to consume more goods and services of all kinds. (Parkin & Bade p.610) From 1990 to 1993, the slopes for both graphs become flat, due to the 1990 recession in Canada and the low foreign exchange rate. In the long run of the GDP and the imports of goods and services, it should keep with a constant slight increase in pace, it was because the GDP has a stable constant increase in the year 1981 to 1983 and the global recession has a significant improvement in 1996. It will not have any large fluctuation unless there are some events that make the worldwide fluctuation in economic growth such as war, fluctuation in stock price. In conclusion, imports of goods and services have a close relationship with the GDP. It also affected by many other factors such as consumption, Investment, the export of goods and services.