This question explores how international trade affects the multiplier. Assume initially that a country is isolated from
Question:
This question explores how international trade affects the multiplier.
Assume initially that a country is isolated from the world and its MPC is 0.8. What is the multiplier? Now assume it opens up its borders and people still spend 80¢ of every new dollar earned on consumption.
However, 50¢ is spent on domestically produced consumption goods and 30¢ on imported consumption goods. What is the multiplier now?
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