A European recession and the US economy

a. In 2017, European Union spending on US goods accounted for 19\% of US exports (see Table 18.2), and US exports amounted to \(12.3 \%\) of US GDP (see Table 18.1). What was the share of European Union spending on US goods relative to US GDP?

Data From Table 18.1:-

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 United States by 5\% (relative to its normal level). Given your answer to part (a), what is the impact of the European slump on US GDP?

c. If the European 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 size of the effect, assume that US exports decrease by \(5 \%\) (as a result of changes in foreign output) in one year. What is the effect of a \(5 \%\) drop in exports on US GDP?

d. Comment on this statement: 'If Europe has a major slump, US growth will also grind to a halt.

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Table 18.1 Ratios of exports to GDP for selected OECD countries, 2017 Country Export ratio Country Export ratio United States 12.3% Germany 47.2% Japan 16.1% Austria 53.9% Chile 28.7% Switzerland 65.0% United Kingdom 30.5% Netherlands 86.4%