Answer to Question #95029 in Macroeconomics for Rochelle Hoey

Question

Using appropriate graphs, explain how a decrease in marginal propensity to import will affect the size of the autonomous expenditure multiplier, other things being constant. (You can use the multiplier formula to assist your explanation)

Answer 1

A decrease in marginal propensity to import will increase the size of the autonomous expenditure multiplier, other things being constant, because the formula for it is m = 1/(1 - c(1 - t) - im), where im is marginal propensity to import.