In 2007-2008, exports from Canada to the United States fell dramatically.Based on the multiplier effect, we would expect
A)the economy to shrink by less than the drop in exports.
B)the economy to grow by less than the drop in exports.
C)the economy to grow by more than the drop in exports.
D)the economy to shrink by more than the drop in exports.
E)the economy to be unaffected due to a corresponding drop in imports.

Question

Quizplus · Accepted Answer

The multiplier effect suggests that a decrease in exports would lead to a larger overall decrease in the economy, as the initial drop in exports reduces income and spending, leading to further decreases in economic activity.

In 2007-2008, Exports from Canada to the United States Fell