In an open economy, the size and effectiveness of the multiplier _____.
A) is relatively high because imports always exceed exports in an open economy
B) is relatively lower because exports are an injection in the circular ﬂow of income
C) is relatively higher because the marginal propensity to export is higher
D) is relatively lower because imports are a leakage from the circular ﬂow of income

Question

Quizplus · Accepted Answer

In an open economy, the multiplier effect is relatively lower because imports represent a leakage from the circular flow of income, reducing the overall impact of initial spending on the economy's total output.

In an Open Economy, the Size and Effectiveness of the Multiplier