An increase in Australia's marginal propensity to import will:
A)have no effect on GDP, because GDP only includes spending in Australia
B)cause an increase in GDP, because Australians have risen their spending
C)cause a decrease in GDP, because some existing spending will demand production overseas instead of in Australia
D)always be bad for the economy

Question

Quizplus · Accepted Answer

A higher marginal propensity to import means that more of the spending is directed towards imports from other countries, which reduces the demand for domestically produced goods and services. This can lead to a decrease in GDP as production decreases in the domestic economy.

An Increase in Australia's Marginal Propensity to Import Will