Consider the following statements: Statement I: In an open economy, a higher marginal propensity to import tends to weaken the multiplier effect of an increase in autonomous expenditure. Statement II: Marginal propensity to import measures the change in imports induced by a change in income. Statement III: When additional income generates additional imports, part of the spending leaks out of the domestic circular flow. Which one of the following is correct in respect of the above statements?

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Economics · Economy

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Correct answer

Both Statement II and Statement III are correct and both of them explain Statement I.

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Answer 1

Neither Statement II nor Statement III is correct.

Answer 2

Only one of the Statements II and III is correct and that explains Statement I.

Answer 3

Both Statement II and Statement III are correct but only one of them explains Statement I.

Answer 4

Both Statement II and Statement III are correct and both of them explain Statement I.

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