Compared to the closed economy Keynesian model,the open economy model in which imports are a function of income has an investment multiplier that is
A)smaller.
B)larger.
C)equal.
D)equal to 1.

Question

Quizplus · Accepted Answer

In an open economy model, an increase in investment will not only increase output but also increase imports. This means that the increase in output will not have a fully multiplied effect as some of it will leak out through imports. As a result, the investment multiplier is smaller in the open economy model compared to the closed economy model.

Compared to the Closed Economy Keynesian Model,the Open Economy Model