Macroeconomics 5th Edition by Olivier Blanchard

Exercise 3

Japan's slump and the U.S. economy
a. In 2006, Japanese spending on U.S. goods accounted for 6% of U.S. exports (see Table 18-2), and U.S. exports amounted to 11% of U.S. GDP (see Table 18-1). What was the share of Japanese spending on U.S. goods relative to U.S. GDP
b. Assume that the multiplier in the United States is 2 and that Japan's slump has reduced output there by 5% (relative to its natural level). Given your answer to part (a), what is the impact on U.S. GDP of the Japanese slump
c. If the Japanese slump also leads to a slowdown of the other economies that import goods from the United States, the effect could be larger. To put a bound to the 1 size of the effect, assume that U.S. exports fall by 5% (as 1 a result of changes in foreign output) in one year. What is the impact of a 5% fall in exports on U.S. GDP
d. Comment on this statement. "Unless there is a strong and sustained recovery in Japan, U.S. growth will grind to a halt."