Income and Expenditure - The Income–Expenditure Model - What About Exports and Imports?
4 important questions on Income and Expenditure - The Income–Expenditure Model - What About Exports and Imports?
What two modifications does exports and import have that affect the how the multiplier work?
- First, income earned from exports is a source of spending on domestically produced goods and services
- second the multiplies is made weaker by the effects of imports, because imports leads money leaks abroad and leaves the country's leading the rise in overall GDP to be less than the rise in GDP when the economy is washout trade.
What happens what there is a decrease in exports
this leads to a decline in GDP again
What does the extent to which the multiplier falls depend on? what is the name for extent to which the multiplier falls depend on?
this can be called MPI or marginal propensity to import
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What kind of countries have a smaller reduction in their multiplier?
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