In an open economy, the government purchases multiplier will be larger the

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Quizplus · Accepted Answer

The government purchases multiplier in an open economy will indeed be larger under all the conditions listed: a smaller marginal propensity to import means less spending is diverted abroad and more stays in the domestic economy; a smaller marginal income tax rate leaves more income available for spending, thereby increasing the multiplier effect; a larger marginal propensity to consume means more of each dollar of income will be spent, amplifying the impact of government purchases; and a smaller marginal propensity to save implies that more of each dollar of income will be spent rather than saved, further enhancing the multiplier effect.

In an Open Economy, the Government Purchases Multiplier Will Be