To calculate the total demand for goods and services in a country, we have to include not only domestic demand but also foreign demand. That is, we must know the total expenditure of the residents in the country, as well as net purchases by foreigners. This total should include domestic spending plus foreign sales minus domestic purchases to foreigners. Spending on domestic product or GDP is equal to consumption plus domestic investment plus government purchases plus net exports.
Foreign trade has an effect on the GDP as investment or procurement. When increase net exports , aggregate demand increases domestic production. Therefore, net exports produce a multiplier effect on production. But the spending multiplier will be smaller in an open economy than in a closed one due to leakage of spending to imports (Online Forex Trading).
It is clear that, if everything else remains constant, the open economy multiplier is less than that of a closed economy.
