If imports are expressed as M = my where M is the level of imports and y is the level of GDP, then the government spending multiplier equals:

Question

Quizplus · Accepted Answer

The government spending multiplier is given by:

1 / (1 - b)

where b represents the marginal propensity to consume (MPC) out of income.

To account for imports (m), we can adjust this formula as:

1 / [1 - b(1 - m)]

Therefore, the correct answer is D:

1 / (1 - (b - m))

If Imports Are Expressed as M = My Where M