The Open Economy Multiplier Is Calculated as Follows

question 103

Multiple Choice

The open economy multiplier is calculated as follows:

• A)1/[1-(marginal propensity to consume + marginal propensity to invest)]
• B)1/[1-(marginal propensity to consume + marginal propensity to import)]
• C)1/[1-(marginal propensity to consume + marginal propensity to invest + marginal propensity to import)]
• D)1/[1-(marginal propensity to consume + marginal propensity to invest - marginal propensity to import)]

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Definitions:

Price of Labor

The wage or salary paid for the services of an employee or worker; essentially the cost of hiring labor.

Isocost Line

A line on a graph representing all combinations of inputs that have the same total cost.

Price of Capital

The cost of using capital goods, such as machinery or buildings, often expressed in terms of interest rates or rental rates.

Isocost Line

A line representing all combinations of a firm’s inputs that cost the same amount.