One effect of German unification was a rise in demand for most Western countries’ exports. However, the impact differed considerably among countries, depending on the multipliers that transform an exogenous change in demand into a change in income. Consider the Netherlands and the United Kingdom. The share of imports in Dutch GDP is 52%, the share of imports in British GDP is 27%. Assume that these average import propensities are also the marginal propensities to import. Assume, further, that for both countries the marginal propensity to consume is 80% and the average tax rate is 30%. (a) Calculate the equilibrium effect of an exogenous increase of export demand by 100 units on Dutch and British GDP. (b) Employ the successive-rounds interpretation of the multiplier. By how much has income increased after round #3 in total?

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now


"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"