Which of the following statements is true?

Question

Quizplus · Accepted Answer

The open-economy multiplier is influenced by the marginal propensity to consume (MPC). A larger MPC means that a greater portion of income will be spent on consumption, which amplifies the multiplier effect in an economy. This is because the multiplier effect is based on the idea that an initial increase in spending (such as government spending or investment) leads to increased income and consumption, which further stimulates the economy. The other options incorrectly relate the size of the open-economy multiplier to the marginal propensities to import, export, and save in ways that do not align with economic principles.

Which of the Following Statements Is True