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Author Question: Explain why the multiplier in an open economy is different from the multiplier in a closed economy. ... (Read 87 times)

HudsonKB16

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on: Jun 30, 2018
Explain why the multiplier in an open economy is different from the multiplier in a closed economy.
 
  What will be an ideal response?

Question 2

The natural rate of interest is not
 
  A) zero.
  B) the neutral rate of interest.
  C) Wicksellian rate of interest.
  D) associated with the natural rate of unemployment.


morrie123456

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Reply #1 on: Jun 30, 2018
Answer to Question 1

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.

Answer to Question 2

A


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