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Open & closed economies

1. A open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. What is marginal propensity to save of this economy? *It looks as though enough information has not been provided.*

2. A open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. What is spending multiplier of this economy?

3. A open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. If a tourist comes to this economy and spends the $100 she brought from home, then what will happen to the equilibrium real GDP.

4. A 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 in an open economy the spending multiplier equals 5, given am MPI of 0.15 and an MPS of 0.05. What would be the spending multiplier in a closed economy.?

Please show how you arrived at the answer. Thank you

Solution Preview

1. Actually for this question you have more information than you need. The MPS is equal to 1-MPC. You don't need the MPI. In this case MPS =0.3

2. We can use this ...

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