Question

The ________ the marginal propensity to import, the ________ the expenditure multiplier. A. larger; smaller B....

The ________ the marginal propensity to import, the ________ the expenditure multiplier.

A.

larger; smaller

B.

smaller; smaller

C.

larger; more negative

D.

larger; larger

E.

None of the above is correct, because the expenditure multiplier is not related to the marginal propensity to import.

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Answer #1

Correct option is (A).

Spending multiplier = 1 / (MPS + MPM) where MPS: Marginal propensity to save, MPM: Marginal propensity to import

The larger the MPM, the larger the value of (MPS + MPM) and so, the smaller the multiplier.

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