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For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all
For small open economy, assume that the marginal propensity to import is 0.3, and that interest rates, exchange rates, and the price level are all constant. If an increase of $10 billion in government spending results in an increase of $6 billion in imports, then:
A.taxes increase by $10 billion.
B.the spending multiplier is 2.
C.real GDP increases by $20 billion.
D.real domestic investment decreases by $4 billion.
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