Macro Doubts

[Ashima]

Please help with these!

True/False
1. Opening the economy to trade tends to increase the
multiplier because an increase in expenditure leads to
more exports.
2. While the export ratio can be larger than one – as it is in
Singapore – the same cannot be true of the ratio of
imports to GDP.

[ViV]

1. False

[Ashima]

How?

[ViV]

Multiplier = 1/1-b
Multiplier = 1/1-b+m
(Foreign Trade)
Import : M = A+ mY

[Ashima]

cool! 2nd ? false? Can be greater than 1?

[Akshay Jain]

It is false because openin the economy leads to  addition of another term in aggregade demnd equation which is exports-imports
now marginal propensity to export depends on the foriengn income which we take to be exogenous and mrginal propensity to import depends on the domestic income.....imports can b considered as a leakage from the system which reduces the multiplier

[ViV]

Yeah! Akshay through induced import.

[Akshay Jain]

Yes through induced import demand....

[Homer Simpson]

2 is true. also, were you able to solve 24 and 11 of SIS 2013?? :( no idea how to approach them

[Ashima]

Thanks guys! 2nd one please!

[Ashima]

Tsuki: 24 no idea! 11th there is a typo! Instead of 1 it should be ith urn . Now try!

[Dreyfus]

Viv ..the multiplier shud be 1/(1-c-m)...

[ashutosh]

2 is false
When the imports are primarily for the purpose of re-exporting then the import /GDP ratio can be greater than 1. For the countries like Hongkong?singapore, which have large re-exporting zones. Import and export to GDP ratio's are higher than 1.

[Ashima]

No no it will be 1/1-c+m, multiplier will decrease!

[Ashima]

Oh thanks ashutosh! :)

[Dreyfus]

Ohh...my mistake ....

[Granpa Simpson]

for Q11 use Bayes Theorem...!!!