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 ________ million increase in exports will increase net exports by $550 million.

Question

Quizplus · Accepted Answer

A $1.00 increase in exports increases GDP by $3.00. This means that for every dollar increase in exports, the income in the economy increases by $3.00. Given that a $1.00 increase in income increases import spending by $0.15, a $3.00 increase in income (from a $1.00 increase in exports) would increase imports by $0.45 ($3.00 * $0.15). Therefore, for every $1.00 increase in exports, net exports increase by $0.55 ($1.00 - $0.45). To achieve a $550 million increase in net exports, exports must increase by $1,000 million ($550 million / $0.55).

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