Assume that a $1.00 increase in exports increases GDP by $3.00, and a $1.00 increase in income increases import spending by $0.15. In this case, a $1,000 million increase in exports will increase net exports by

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Quizplus · Accepted Answer

Given a $1,000 million increase in exports, GDP would increase by $3,000 million (due to the multiplier effect). This increase in income would then increase import spending by 0.15 * $3,000 million = $450 million. Therefore, the net increase in exports would be the initial $1,000 million increase minus the $450 million increase in imports, resulting in a net increase of $550 million.

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