What is the impact of a 5% drop in exports on U.S. GDP?

a) In 2010 European Union spending on U.S. goods ac- cou Show more A European recession and the U.S. economy a) In 2010 European Union spending on U.S. goods ac- counted for 23% of U.S. exports (see Table 18-2) and U.S.exports amounted to 13% of U.S. GDP (see Table 18-1). What was the share of European Union spending on U.S. goods relative to U.S. GDP? b) Assume that the multiplier in the United States is 2 and that a major slump in Europe would reduce output and imports from the U.S. by 5% (relative to its normal level). Given your answer to part (a) what is the impact on U.S. GDP of the European slump? C) If the European slump also leads to a slowdown of the other economies that import goods from the United States the efect could be larger. To put a bound to the size of the efect assume that U.S. exports decrease by 5% (as a result of changes in foreign output) in one year. What is the impact of a 5% drop in exports on U.S. GDP? D) Comment on this statement. Unless Europe can avoid a major slump following the problems with sovereign debt and the Euro U.S. growth will grind to a halt. Show less

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