An increase in the marginal propensity to import will cause

Question

Quizplus · Accepted Answer

An increase in the marginal propensity to import means that for every additional unit of income, households are likely to spend more on imports than domestic goods and services. This means that a larger proportion of the government spending (G) will leak out of the economy in the form of higher imports, reducing the multiplier effect. Therefore, the multiplier will decrease, and a given change in government spending (G) will have a smaller effect on domestic output.

An Increase in the Marginal Propensity to Import Will Cause