Mauritius, an island off the coast of Africa, competes with other countries producing goods with low- skilled labor. In 2006, it was reported that ..."its clothing factories have been exposed to fronta competition from China, India and other Asian mass producers." As a result, "the main export indu has seen a 30 per cent reduction in volume ..."
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Suppose real GDP is $14 billion, exports total $2 billion and the multiplier is 4. If exports decline by
$600,000,000, real GDP in Mauritius will

Question

Quizplus · Accepted Answer

The multiplier effect suggests that a decrease in exports by $600,000,000 leads to a decrease in real GDP of 4 x $600,000,000 = $2.4 billion. Therefore, the correct answer is C) decrease by $2.4 billion.

Mauritius, an Island Off the Coast of Africa, Competes with Other