An economy that is more open to world trade will have a
A) smaller multiplier because the marginal propensity to expend on imports will be smaller.
B) larger multiplier because the marginal propensity to expend on imports will be smaller.
C) smaller multiplier because the marginal propensity to expend on imports will be larger.
D) larger multiplier because the marginal propensity to expend on imports will be larger.

Question

Quizplus · Accepted Answer

An economy that is more open to world trade tends to have a larger marginal propensity to import. This means that a higher proportion of any increase in income will be spent on imports rather than on domestically produced goods and services. As a result, the domestic economic multiplier effect is smaller because less of the spending stays within the economy to stimulate further economic activity.

An Economy That Is More Open to World Trade Will