Calculating GDP from Trade-to-GDP Ratio

What is the GDP if the trade-to-GDP ratio is 25% and the overall value of trade is $175 billion?

a. $700 billion

b. $250 billion

c. $1 trillion

d. $0.5 trillion

Answer:

The GDP is $700 billion.

To calculate the GDP from a trade-to-GDP ratio of 25% and a total trade value of $175 billion, you divide the total trade value by the ratio. In this case, $175 billion divided by 0.25 gives a GDP of $700 billion.

Explanation: To calculate the GDP, we'll use the trade-to-GDP ratio which is 25%. This ratio tells us that the total value of trade – imports plus exports – represents 25% of the GDP. The overall value of trade given in the question was $175 billion. Knowing this, we can find the GDP by dividing the total trade value by 25%, or in decimal form 0.25. This gives us: GDP = $175 billion / 0.25 = $700 billion. We know then that the GDP is $700 billion, making option a ($700 billion) the correct choice.