Explain why the multiplier in an open economy is different from the multiplier in a closed economy
What will be an ideal response?
In a closed economy, the effects of any change in Y on demand all falls on domestic goods. In an open economy, some of the increased spending falls on imports. So, the final change in Y will be smaller in an open economy because of the existence of the marginal propensity to import.
You might also like to view...
Luke purchases a $50,000 face value one-year Treasury bill for $46,296.30, and the next day investors decide they will only buy one-year Treasury bills if they receive an interest rate of 4%
If Luke decides to sell his Treasury bill to another investor the day after he purchased it, he will A) receive a capital gain of $1,780.62. B) receive a capital gain of $2,000.00. C) suffer a capital loss of $1,923.08. D) suffer a capital loss of $1,851.85.
If the interest rate is 4 percent, to get back $200 in one year you would need to deposit ________ today.
A. $187.43. B. $192.31. C. $195.55. D. $208.00.