If the MPC is 0.75 and the MPM is 0.25, the open economy multiplier is 2.

Question

Quizplus · Accepted Answer

The open economy multiplier can be calculated as follows:

Multipler = 1 / (1 - MPC + MPM + NX / Y)

Where NX/Y represents net exports as a percentage of GDP.

In this case, we are given that MPC = 0.75 and MPM = 0.25. We do not have information on net exports, so we will assume NX/Y = 0.

Multipler = 1 / (1 - 0.75 + 0.25 + 0)
Multipler = 1 / 0.5
Multipler = 2

Therefore, the open economy multiplier is indeed 2.

If the MPC Is 0