Multiple choice

Which of the following assumptions is not related to foreign trade multiplier?

  1. There is full employment in the domestic economy.

  2. There is direct link between domestic and foreign countries in exporting and importing goods.

  3. It is based on multiple exchange rate system.

  4. Government expenditure is constant.

  5. The multiplier is based on instantaneous process without time lags.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The assumption of foreign trade multiplier is based on fixed exchange rate system.  The foreign trade multiplier is also known as export multiplier and its assumption is based on instantaneous process without time lags.

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