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The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rate r),
The aggregate demand of an open economy is given by the after-tax domestic consumption C, the investment I (which depends on the interest rate r), the government spending G and net exports X - M. Given this equation, which of the following increases the multiplier?
AD = C + I + G + X - M = c0+ c1(1 - t)Y + I(r) + G + X - mY
Select one:
a.A rise in the tax rate.
b.A fall in government spending.
c.A fall in the interest rate.
d.A fall in the marginal propensity to import.
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