Suppose the United States' imports substantially affect foreign incomes, and the foreign countries import from the United States. The United States' spending multiplier will exceed the spending multiplier for a comparable small open economy.

Question

Quizplus · Accepted Answer

Since the United States is a large economy and its imports have a significant impact on foreign incomes, its spending multiplier is likely to be higher compared to a small open economy. In addition, foreign countries' imports from the United States will further augment the overall impact of US imports on the global economy.

Suppose the United States' Imports Substantially Affect Foreign Incomes, and the Foreign