Answer to Question #210115 in Macroeconomics for matt

Question

1.     When comparing the investment multiplier in a closed-economy to the investment multiplier in an open-economy it can be concluded that

Answer 1

Investment multiplier establishes a precise relationship given the propensity to consume between aggregate employment, income and the rate of investment.

Therefore I can conclude that for a open economy the value of the multiplier calculated will be less compared to that of the closed economy because of an aggregate expenditure function. It may also be as a result of the cost of importing products and savings cease to be intergial part of the aggregate demand for some products. The closed economy provides all domestic consumers needs from within the country while in open economy the exports creates jobs and increase GDP through multiplier