Refer to the information provided in Figure 34.1 below to answer the question(s) that follow. Figure 34.1
-Refer to Figure 34.1. The open economy multiplier is

Question

Refer to the information provided in Figure 34.1 below to answer the question(s) that follow.  Figure 34.1
-Refer to Figure 34.1. The open economy multiplier is

Quizplus · Accepted Answer

The open economy multiplier is 1/(1-MPC*MPM), where MPC is the marginal propensity to consume and MPM is the marginal propensity to import. In this case, MPC = 0.8 and MPM = 0.25, so the open economy multiplier is 1/(1-0.8*0.25) = 1.25.

Refer to the Information Provided in Figure 34