Scenario 10.2 A Hypothetical Open Economy Has a Marginal Propensity to Import

Scenario 10.2
A hypothetical open economy has a marginal propensity to import (MPI) equal to 0.2 and a marginal propensity to consume equal to 0.7. Assume that the economy is initially in equilibrium.
-Refer to Scenario 10.2. If a tourist visits the country and spends $100 that she brought with her, then what will happen to the equilibrium real GDP?

A) It will not change
B) It will increase by $100
C) It will increase by $200
D) It will increase by $143
E) It will increase by $90

Correct Answer:

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