Scenario 10.2 A Hypothetical Open Economy Has a Marginal Propensity to Import

question 79

Multiple Choice

Scenario 10.2
A hypothetical open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. Assume that the economy is initially in equilibrium.
-Refer to Scenario 10.2. What is the spending multiplier of this economy?

• A) 2
• B) 1.4
• C) 0.7
• D) 0.9
• E) Cannot be determined with the information given

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Definitions:

Cambrian

A geological period approximately 541 million years ago, marked by a rapid diversification of life in the Earth's oceans.

Proterozoic

An eon in the geologic timescale, following the Archean and preceding the Phanerozoic, characterized by the first evidence of oxygen in the atmosphere and multicellular life.

Incomplete Metamorphosis

A type of development in some insects, where the young resemble adults but are typically smaller and lack fully developed wings and reproductive structures.

Nymph

An immature form of some invertebrates, particularly insects, which undergoes gradual metamorphosis before reaching its adult stage.