The spending multiplier with variable net exports is
A)(1 + MPC)/MPM
B)1/(1 - MPC)
C)1/(1 - MPC + MPM)
D)1/(1 - MPC - MPM)
E)MPC/MPM

Question

Quizplus · Accepted Answer

The spending multiplier with variable net exports can be calculated using the formula 1/(1-MPC+MPM). MPC is the marginal propensity to consume and MPM is the marginal propensity to import. The formula takes into account both the increase in consumption resulting from an increase in disposable income (MPC) and the decrease in spending resulting from an increase in imports (MPM). Therefore, the correct option is C.

The Spending Multiplier with Variable Net Exports Is