The value of the multiplier in an open economy is generally
A) less than zero.
B) greater than the multiplier in a closed economy.
C) identical to the value of the multiplier in a closed economy.
D) less than the value of the multiplier in a closed economy.
E) indeterminate because the behavior of exports is unpredictable.

Question

Quizplus · Accepted Answer

In an open economy, some of the increase in income resulting from fiscal expansion is spent on imports rather than domestic goods and services. This leakage into imports reduces the size of the multiplier compared to a closed economy, where all spending is assumed to remain within the domestic economy.

The Value of the Multiplier in an Open Economy Is