Foreign trade multiplier with repercussions, export shock
D = MPS1 + MPM1 + MPM2 x MPS1/MPS2
k'' = 1 / D
Class case: D = 0.525, k'' = 1.90 (against k' = 2.5)
An autonomous change in this nation's exports, when the partner is large enough for its income to respond. Compute D once and reuse it.
- MPS1, MPM1
- This nation's marginal propensities to save and import. Class case 0.25 and 0.15
- MPS2, MPM2
- The partner's marginal propensities. Class case 0.2 and 0.1
- D
- The common denominator of all three repercussion multipliers
Foreign trade multipliers with repercussions, investment shocks
k* = (1 + MPM2/MPS2) / D shock to Nation 1's investment
k** = (MPM2/MPS2) / D shock to Nation 2's investment
Check: k* = k'' + k**
Class case: k* = 2.86, k** = 0.95
An autonomous change in investment, at home for k* and abroad for k**. Always finish with the k* = k'' + k** check.
- k*
- Effect on this nation's income per unit of its own autonomous investment
- k**
- Effect on this nation's income per unit of the partner's autonomous investment, the pure spillover
- MPM2/MPS2
- The partner's import-to-saving propensity ratio, which sizes the echo. Class case 0.5
Turning a multiplier into a trade balance
dY1 = multiplier x shock
dM1 = MPM1 x dY1
dS1 = MPS1 x dY1
dI1 + dX1 = dS1 + dM1 (solve for the missing flow)
trade balance change = dX1 - dM1
Every repercussion question that asks for the surplus or deficit rather than just the income. The fourth line recovers whichever of dX1 or dI1 the question did not give you.
- dX1
- The net change in exports, which for an export shock is smaller than the autonomous change
- dM1
- Induced imports, always MPM1 times the change in income