Suppose that there are two countries in the world economy, countries I and II. The countries possess

Question:

Suppose that there are two countries in the world economy, countries I and II. The countries possess the following marginal propensities: MPCI = 0.7; MPMI = 0.1; MPCII = 0.8; MPMII = 0.2. There is no government sector. Using the formula for the open-economy multiplier with foreign repercussions, calculate the effect on country I’s income of a rise in autonomous investment in country I of $35 billion.