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MPC and Marginal Propensity to Import (MPm)

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68. In an open economy, MPC = 0.6, MPm = 0.2. This implies that:

A) MPS in the open economy is lower than in the closed economy.
B) MPS = 0.4 only if the economy were closed.
C) in the open economy, if GDP increases by 200 spending on consumption = 120.
D) in the open economy, if GDP increases by 200 spending on imports increases by 40.
E) B and D.

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MPC and Marginal Propensity to Import (MPm) help is offered. An open economy is analyzed.

See Also This Related BrainMass Solution

The Marginal Propensity to Consume (MPC)

The marginal propensity to consume (MPC) equals 0.3, and the marginal propensity to import (MPm) is 0.1. If Americans suddenly increase their desire for European cars and the MPm increases to 0.3, on the basis of the Keynesian model of output determination:

A) the multiplier will rise by 20% of its original value.
B) an increase in government spending of 100 will have no effect on GDP
C) an increase in GDP of 100 will cause imports to rise by 30
D) all of the above
E) none of the above

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