How is the multiplier calculated in an open economy with government sector?
A) 1/(marginal propensity to consume + marginal propensity to save + marginal propensity to export)
B) 1/(marginal propensity to consume)
C) 1/(marginal propensity to tax + marginal propensity to export)
D) 1/(marginal propensity to consume + marginal propensity to tax + marginal propensity to

Question

Quizplus · Accepted Answer

The multiplier in an open economy with a government sector is calculated as 1/(1 - (marginal propensity to consume + marginal propensity to tax + marginal propensity to import)). This formula accounts for the leakages in the economy due to taxes, imports, and savings, and how they affect the overall spending multiplier.

How Is the Multiplier Calculated in an Open Economy with Government