In an open model, higher the savings rate and higher the marginal propensity to import, lower will be the net spending fraction on domestic goods and lower will be the multipliers.

Question

Quizplus · Accepted Answer

In an open model, a higher savings rate reduces domestic consumption, and a higher marginal propensity to import means more spending is directed abroad rather than on domestic goods. Both factors reduce the net spending fraction on domestic goods, leading to lower multipliers for domestic output and income.

In an Open Model, Higher the Savings Rate and Higher