Skip to content
We use only essential cookies to keep you signed in and remember your preferences. See our Cookie Policy.
TestStop
MocksPracticeResourcesIndiaBlogPricing
Sign in
Questions › DSE › DSE 2013 › Q52
2 marksMacroeconomics › Keynesian cross and the multiplier › The open-economy multiplierEasyabout 1 min

DSE 2013 Question 52: Keynesian cross and the multiplier

Consider an open economy simple Keynesian model with autonomous investment III. People save a constant proportion sss of disposable income and consume the rest. Government taxes total income at a constant rate τ\tauτ and spends an exogenous amount GGG. Exports XXX are autonomous at the fixed real exchange rate (normalized to unity). Imports MMM are a linear function of total income with constant import propensity mmm. Let I=3200I=3200I=3200, G=4000G=4000G=4000, X=800X=800X=800, s=12s=\tfrac12s=21​, τ=25\tau=\tfrac25τ=52​, and m=110m=\tfrac1{10}m=101​.

At this equilibrium level of income:

Tap an option to check your answer.

Answer and worked solution

Checking your account…

Plain-text version

Consider an open economy simple Keynesian model with autonomous investment I. People save a constant proportion s of disposable income and consume the rest. Government taxes total income at a constant rate τ and spends an exogenous amount G. Exports X are autonomous at the fixed real exchange rate (normalized to unity). Imports M are a linear function of total income with constant import propensity m. Let I=3200, G=4000, X=800, s=1/2, τ=2/5, and m=1/10. At this equilibrium level of income: (A) there is a trade surplus (B) there is a trade deficit (C) trade is balanced (D) one cannot comment on the trade account without further information

Also written as: Consider an open economy simple Keynesian model with autonomous investment I. People save a constant proportion s of disposable income and consume the rest. Government taxes total income at a constant rate tau and spends an exogenous amount G. Exports X are autonomous at the fixed real exchange rate (normalized to unity). Imports M are a linear function of total income with constant import propensity m. Let I=3200, G=4000, X=800, s=1/2, tau=2/5, and m=1/10. At this equilibrium level of income:

Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.

What this question tests

This question is on The open-economy multiplier, part of Keynesian cross and the multiplier in Macroeconomics.

How imports leak spending abroad and shrink the multiplier.

TestStop has 16 past-paper questions on this subtopic; the nearest in year are below.

  • GATE 2021 · Q12In a two country model, an increase in foreign country's national income generally leads to:
Practise Keynesian cross and the multiplierMore on The open-economy multiplier

Similar questions from other papers

  • CUET-PG 2026 · Q14If consumption is C = 40 + 0.75y, Investment is I = 60, The output, consumption and saving at the equilibrium will be _ respectively
  • UGC-NET 2026 · Q56What is the formula of Super Multiplier?
  • CUET-PG 2025 · Q12Which of the following is not correct about the effect of taxes on income and output?
  • GATE 2025 · Q40For a closed economy with no government expenditure and taxes, the aggregate consumption function (C) is given by: C = 100 + 0.75 Y_d where Y_d is the disposable…
  • IIT JAM 2025 · Q53An economy saves 25% of its national income and invests a sum of Rs.1000 each year. The economy starts with Rs.10,000 as its initial national income. Assume that the…

Question from the DSE 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.