Question

Opening the economy to trade tends to A. lower the multiplier because an increase in expenditure leads to more exports. B. lower the multiplier because an increase in expenditure leads to more imports. C. increase the multiplier because an increase in expenditure leads to more exports. D. increase the multiplier because an increase in expenditure leads to more imports.

Answer 1

(A) Lower the multiplier because an increase in expenditure leads to more imports.

What is trade?

• The transfer of commodities and services from one person or entity to another, frequently in exchange for money, is referred to as a trade.
• Economists define a market as a structure or network that allows commerce.
• The Gift economy, an early type of trade, saw the exchange of commodities and services without an express agreement for immediate or future rewards.
• A gift economy involves the exchange of goods without the use of money.
• Modern traders typically bargain using a medium of exchange, such as money.
• As a result, purchasing can be distinguished from selling or earning.

What happens when the economy is open to trade?

• Trade helps to improve global efficiency.
• When a country opens up to commerce, capital and labor flow to businesses that make better use of them.
• This movement raises the standard of living in society.
• Reduce the multiplier since an increase in expenditure leads to an increase in imports.

Reason -

As it is given that opening an economy to trade lowers the multiplier since an increase in expenditure leads to more imports.

Therefore, opening the economy leads to (A) Lower the multiplier because an increase in expenditure leads to more imports.

Know more about an economy here:

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