Marginal propensity to import
Topic: Balance of Payments and Exchange Rates · NCERT: Class 12, Ch 6 "Open Economy Macroeconomics"
Meaning
The marginal propensity to import (m) is the share of an extra rupee of income spent on imports. It is the coefficient on Y in the import function M = M̄ + mY, where 0 < m < 1. A higher m means more of each round of spending leaks abroad. That makes the aggregate demand line flatter and the multiplier smaller: 1/(1 − c + m).
Example
If M = 60 + 0.06Y, then m = 0.06. When income rises by ₹100, imports rise by ₹6.
Don't confuse with
- Average propensity to import (M/Y): this is total imports divided by total income. The marginal propensity looks only at the change in imports when income changes.
- Marginal propensity to consume (c): c is the share of extra income spent on all consumption. m is only the part that goes on foreign goods.
Related concepts
- Open economy
- Closed economy
- External sector
- Export
- Import
- Demand for domestic goods
- Net exports
- Autonomous imports