Question

HW6 Q12

Suppose that China takes a policy of import substitution, i.e. instead of importing Boeing aircrafts from the US, they build plants to produce aircrafts. The Economic advisor of Donald Trump says that this would affect the GDP of the USA. Through which multiplier (for the USA) directly?

A Government Expenditure Multiplier

B Autonomous Export Multiplier

C Autonomous Import Multiplier

D Investment Multiplier

Answer 1

Solution:-Option D is correct

D.Investment Multiplier

Explaination:-Suppose that China takes a policy of import substitution, i.e. instead of importing Boeing aircrafts from the US, they build plants to produce aircrafts. The Economic advisor of Donald Trump says that this would affect the GDP of the USA through the Investment Multiplier.The foreign trade multiplier also known as theexport multiplier operates like the investment multiplier of Keynes. It may be defined as the amount by which the national income of a nation will be raised by a unit increase in domestic investment on exports.