Briefly discuss the relationship between leakages and the size of the

Briefly discuss the relationship between leakages and the size of the multiplier.

What will be an ideal response?

ANSWER

The fewer leakages out of the circular flow will increase the size of the multiplier. Thus, if the marginal propensities to consume and invest increase or the marginal propensity to import decreases, the slope of the IS curve will decrease and the IS curve will be flatter.