SHORT RUN IMPACT OF TRADE ON GDP

How do changes in a nation’s trade flows affect its GDP and employment? We first analyze this question in the context of our short-run model of output determination, the multiplier model of Chapter 25. The multiplier model shows how, in the short run when there are unemployed resources, changes in trade will affect aggregate demand, output, and employment.

There are two macroeconomic elements in the presence of international trade: First. we have a fourth component of spending, net exports, which adds to demand. Seclude.,an open economy has different multipliers for private investment and government domestic spending because some spending leaks out to the rest of the world.

Equilibrium GDP occurs where the blue line of” total spending intersects the 45° line. This intersection comes at exactly the’ same point, at $3500 billion, that is shown as equilibrium GDP in Table 30- 1. Only at $3500 billion does GDP exactly equal what consumers, businesses, governments, and foreigners want to spend on goods and services produced ill the United States.

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