Practicing Success
If c = 0.8 and m = 0.3, calculate closed economy multiplier. |
5 3 2 1 |
5 |
The correct answer is Option 1: 5 The closed economy multiplier = ∆Y /∆ $\overline{A}$ = 1 / (1- c ) = 1 / (1-0.8) = 1 /0.2 = 5 The open economy multiplier = ∆Y /∆ $\overline{A}$ = 1 / (1- c + m) = 1/(1 - 0.8 + 0.3) = 1/0.5 = 2 Here, m = marginal propensity to import |