The open economy multiplier will increase if

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Quizplus · Accepted Answer

The open economy multiplier is calculated by the formula: 1/(1-MPC+MPM). A decrease in MPM will lead to a higher multiplier, as a decrease in MPM means that more domestic expenditure will remain within the domestic economy, leading to higher domestic output and income. An increase in MPC would have a negative effect, as a higher MPC means more consumption spending leaks out of the economy in the form of imports, reducing the multiplier effect.

The Open Economy Multiplier Will Increase If