When a country imports goods and services, it does not increase its own real GDP, so spending on imports should not be included in the calculation of the multiplier effect. Therefore, including imports in the multiplier calculation would decrease its size.

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Imports

Question 333

Multiple Choice

Imports

A) increase the size of the multiplier because imports make disposable income less than real GDP.
B) decrease the size of the multiplier because imports lead to an increase in taxes and government purchases.
C) increase the size of the multiplier because imports are paid for by exports.
D) decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation.

Correct Answer: