When comparing the autonomous expenditure multiplier in a closed-economy model to the autonomous expenditure multiplier in an open-economy model it can be concluded that
A)the multiplier in the open-economy model will be larger than in the closed-economy model.
B)the multiplier in the open-economy model will be smaller than in the closed-economy model.
C)both multipliers are the same.
D)None of the above.

Question

Quizplus · Accepted Answer

The autonomous expenditure multiplier in an open-economy model will be smaller than in a closed-economy model due to leakages from the economy such as imports and capital outflows which reduce the effectiveness of an initial increase in autonomous expenditure.

When Comparing the Autonomous Expenditure Multiplier in a Closed-Economy Model