Marginal Propensity To Import
The marginal propensity to import (MPM) is the amount imports increase or decrease with each unit rise or decline in disposable income. The idea is that rising income for businesses and households spurs greater demand for goods from abroad and vice versa.
Definition: Marginal Propensity to Import (MPM) refers to the amount by which imports increase or decrease when disposable income increases or decreases by one unit. This concept reflects how changes in the income of businesses and households affect the demand for foreign goods.
Origin: The concept of Marginal Propensity to Import originates from macroeconomics, particularly Keynesian economic theory. Keynesianism emphasizes the impact of consumption, savings, and investment on the economy, and MPM is an important tool for analyzing international trade and economic openness.
Categories and Characteristics: MPM can be categorized based on different economic agents (such as households, businesses, and governments). Households typically have a lower MPM as their consumption is more focused on domestic goods; businesses may have a higher MPM, especially those reliant on imported raw materials and equipment. The government's MPM depends on its fiscal and international trade policies.
Specific Cases: 1. Suppose the disposable income of residents in a country increases by 1000 units, and 200 units are spent on imported goods, the country's MPM would be 0.2. 2. A company decides to expand its production line due to increased profits and purchases imported equipment worth 5 million units, indicating a high MPM for the business.
Common Questions: 1. Does MPM change over time? Yes, MPM can change with shifts in economic structure, consumption habits, and international trade policies. 2. What is the relationship between MPM and economic growth? A high MPM may lead to a trade deficit but can also promote technological advancement and increased production efficiency.
