Question

How large is NAFTA?
The North American Free Trade Agreement (NAFTA) is a multilateral trade agreement
between Canada, Mexico, and the United States that came into effect in 1994. Real GDP
for the United States–adjusted for exchange rates and differences in the cost of living–in
1994 was approximately $10.23 trillion.
a) Data on nominal GDP and prices for Canada and Mexico in 1994 are provided in the
following table.
---------------GDP----------exchange rate-----P/PUSA

Canada --- C$1.10 trillion-----1.36 C$/$-----0.91
Mexico Mex$2.23 trillion-----3.38 Mex$/$-----0.67

Calculate real GDP for the NAFTA area in 1994 (in trillions of U.S. dollars), adjusted
for exchange rates and differences in the cost of living.

Answer 1

Please see the calculations below:

	US	Canada	Mexico
Nominal GDP (Local Currency)	10.23	1.1	2.23
Exchange Rate	-	1.36	3.38
Nominal GDP (USD)	10.23	0.81	0.66
Real GDP (Dividing by Relative price Index)	10.23	0.89	0.98
Total GDP for NAFTA	12.10