What Is The Link Between Net Exports And Multiplier Effects?
The first link relates to the spillovers from business cycles in different regions. Suppose that income and output in America fall, perhaps because America decides to contract the economy to slow inflation or maybe simply because demand in the private sector is weak. We know that lower income in America will lead to lower imports from other countries. But American imports are other countries exports, so Europe may find its exports declining and the decrease tends to reduce Europe’s aggregate demand, output, and employment. This multiplier link is what governments have in mind when they try to persuade their trading partners to expand their economies. For example, in 1993, Lawrence Summers an eminent Harvard economist serving as the U.S undersecretary of the Treasury, pointed out to Japanese business leaders that if the Japanese government increased its fiscal outlays, boosting Japanese national income and imports from abroad, then jobs would be created abroad too: The extra demand that
