A decrease in the marginal propensity to import _______, everything else remaining the same.
A)makes the multiplier larger
B)makes the multiplier smaller
C)increases the marginal propensity to consume
D)has no effect on the multiplier
E)sometimes increases the multiplier and sometimes decreases the multiplier

Question

Quizplus · Accepted Answer

A decrease in the marginal propensity to import reduces the leakage from the circular flow of income, thereby increasing the multiplier effect. This is because less of the additional income generated in the economy is spent on imports, leading to more being spent domestically, which further stimulates economic activity.

A Decrease in the Marginal Propensity to Import _______, Everything