A reduction in the marginal propensity to import will cause

Question

Quizplus · Accepted Answer

A reduction in the marginal propensity to import means that less of the additional income generated by an increase in government spending (G) is spent on imports. This leads to a larger portion of the income remaining within the domestic economy, thereby amplifying the effect of government spending on domestic output. Consequently, the ZZ line, which represents the relationship between domestic output and aggregate demand, becomes steeper, indicating that a given change in government spending has a larger effect on domestic output.

A Reduction in the Marginal Propensity to Import Will Cause