Question

In Goa, India, the multiplier effect of iron ore exports is calculated to be 1.62.Vidyut Kumar Ta, “Iron Ore Mining Gives Impetus to Goa’s Economy,” Times of India, April 30, 2003. Calculate the impact of an additional 1,000 rupees of iron ore exports on the economy of Goa.

Answer 1

Δ (real GDP demanded at each price level)=multiplier×initial Δ (component of AD)
Δ (real GDP demanded at each price level)=1.62 × 1,000 = 162 rupees