APFIVE Open Economy Spending Multiplier
In an open economy with a marginal propensity to consume (MPC) of 0.8, a marginal propensity to import (MPM) of 0.2, and a tax rate of 20%, what is the effect on equilibrium GDP if autonomous consumption rises by $50 million?
A
GDP increases by $50 million
B
GDP increases by $200 million
C
GDP increases by approximately $100 million
D
GDP increases by $250 million
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