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

Question

Quizplus · Accepted Answer

Imports do not contribute towards increasing real GDP in the domestic nation, therefore, they do not have a significant impact on the overall multiplier effect. In fact, spending on imports reduces the amount of money circulating within the domestic economy, leading to a decrease in the size of the multiplier.