In an open economy,the government purchases multiplier will be

Question

Quizplus · Accepted Answer

In an open economy, a portion of the government purchases may leak out in the form of imports. The marginal propensity to import (MPI) measures the portion of additional income that goes towards imports. As the MPI decreases, there will be less leakage and more of the government spending will be retained in the domestic economy. This will result in a larger multiplier effect on output and national income.

In an Open Economy,the Government Purchases Multiplier Will Be