A marginal propensity to consume of 0.75 and a marginal propensity to import of 0.05 are associated with an open-economy spending multiplier of 3.33.

Question

Quizplus · Accepted Answer

The formula for the open-economy spending multiplier is:
1/(MPS-MPM)
where MPS is the marginal propensity to consume and MPM is the marginal propensity to import.
Plugging in the given values:
1/(0.75-0.05) = 3.33
Therefore, the statement is true.

A Marginal Propensity to Consume of 0