If the marginal propensity to import is 0.2, then a $1,000 increase in income will:

Question

Quizplus · Accepted Answer

The marginal propensity to import (MPT) is the fraction of additional income that is spent on imports. Therefore, if MPT is 0.2, then for every $1 increase in income, $0.2 will be spent on imports. For a $1,000 increase in income, $200 will be spent on imports, leading to a decrease in net exports by $200. Therefore, the correct answer is C.

If the Marginal Propensity to Import Is 0