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Questions › JNU › JNU SSS 2010 › Q85
1 mark, −0.5Macroeconomics › Keynesian cross and the multiplier › The open-economy multiplierModerateabout 2 min

JNU SSS 2010 Question 85: Keynesian cross and the multiplier

An economy has a proportionate income tax at the rate ttt, marginal propensity to consume of α\alphaα and marginal propensity to import of mmm, with values α=0⋅8\alpha = 0\cdot 8α=0⋅8, t=0⋅2t = 0\cdot 2t=0⋅2, m=0⋅1m = 0\cdot 1m=0⋅1. The short-run investment multiplier of the economy will be

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An economy has a proportionate income tax at the rate t, marginal propensity to consume of α and marginal propensity to import of m, with values α = 0· 8, t = 0· 2, m = 0· 1. The short-run investment multiplier of the economy will be (A) 1/[1 - α(1 - t) + m] = 50/23 (B) 1/[1 - (α - m)(1 - t)] = 25/11 (C) 1/[1 - α(1 - t) - m] = 50/3 (D) 1/[1 - α + t + m] = 2

Also written as: An economy has a proportionate income tax at the rate t, marginal propensity to consume of alpha and marginal propensity to import of m, with values alpha = 0* 8, t = 0* 2, m = 0* 1. The short-run investment multiplier of the economy will be

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.

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