If the marginal propensity to save equals 0.2 and the marginal propensity to import equals 0.3,the foreign-trade multiplier equal 2.0.

Question

Quizplus · Accepted Answer

The foreign-trade multiplier is calculated as 1/(1-MPC-MPI), where MPC is the marginal propensity to save and MPI is the marginal propensity to import. In this case, MPC = 0.2 and MPI = 0.3, so the foreign-trade multiplier is 1/(1-0.2-0.3) = 2.0.

If the Marginal Propensity to Save Equals 0