The open economy multiplier is:
A)larger than the simple multiplier because the latter embodies fewer leakages.
B)larger than the simple multiplier because the latter embodies more leakages.
C)smaller than the simple multiplier because the latter embodies fewer leakages.
D)smaller than the simple multiplier because the latter embodies more leakages.

Question

Quizplus · Accepted Answer

The open economy multiplier is smaller than the simple multiplier because it includes additional leakages such as imports, which reduce the overall impact of an initial change in spending.

The Open Economy Multiplier Is