In an open economy with unutilised capacity, if the investment rate remains unchanged, savings amount to 20 percent of GDP and imports account for 30 percent of GDP, an increase in the fiscal deficit by 100 units will cause economic activity to increase by
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Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
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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Question from the JNU SSS 2017 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.