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The marginal propensity to import (m) represents the proportion of each additional unit of national income that is spent on imported goods and services. This value is a fraction, typically greater than 0 but less than 1, indicating that only a part of new income is allocated to imports.

Marginal Propensity to Import (m)

Based on the data provided for the fictional country of Econland, calculate the proportion of each additional dollar of national income that is spent on goods and services from other countries. Show your calculation and express your answer as a decimal.

Calculating National Spending on Foreign Goods

Country X and Country Y are identical in all economic aspects, except that the citizens of Country X tend to spend a larger fraction of any new income on foreign goods compared to the citizens of Country Y. If both countries experience an identical, significant rise in their national income, which of the following outcomes is most likely?

Suppose a country's national income increases from $500 billion to $550 billion in one year. During the same period, its spending on imported goods and services rises from $80 billion to $90 billion. Based on this information, calculate the country's marginal propensity to import. Show your calculation.

Calculating the Marginal Propensity to Import

If a country's marginal propensity to import is 0.2, this means that 20% of the country's total national income is spent on imported goods and services.

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