Q. What is the formula for the foreign trade multiplier where b = MPC, m = MPI? (MPPSC Assistant Prof 4th Aug 2024)
Answer: 1 / (1 - b + m)
Notes: The foreign trade multiplier formula is 1 / (1 - b + m), where b is the marginal propensity to consume domestically produced goods and m is the marginal propensity to import. This formula considers both domestic consumption and imports in calculating the total impact on national income from foreign trade. It was developed in macroeconomic theory to assess how international trade influences income levels.