Suppose the marginal propensity to import for country A is 0.4. Calculate the change in the total value of imports of the country if national income increases by $100,000.
A) $16,000
B) $20,000
C) $60,000
D) $40,000
E) $25,000

Question

Quizplus · Accepted Answer

The marginal propensity to import (MPI) is the proportion of additional income that is spent on imports. With an MPI of 0.4, for every $1 increase in national income, imports increase by $0.40. Therefore, if national income increases by $100,000, imports increase by 0.4 * $100,000 = $40,000.

Suppose the Marginal Propensity to Import for Country a Is