In an open economy, the government purchases multiplier will be

Question

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In an open economy, the government purchases multiplier will be smaller as the marginal propensity to import increases. This is because as the government purchases increase, more people will begin to import goods and services, which will reduce the positive effects of the multiplier. Therefore, a higher marginal propensity to import will decrease the effectiveness of the multiplier, making it smaller.

In an Open Economy, the Government Purchases Multiplier Will Be