If an economy's real GDP increases from $100 billion to $150 billion, and at the same time its imports increase from $40 billion to $50 billion, then the marginal propensity to import
A)decreases from 0.4 to 0.2.
B)is greater than 0.2 and less than 0.4.
C)is 0.2.
D)is 0.36.
E)is 0.4.

Question

Quizplus · Accepted Answer

The marginal propensity to import (MPI) is calculated as the change in imports divided by the change in real GDP. The change in imports is $10 billion ($50 billion - $40 billion), and the change in real GDP is $50 billion ($150 billion - $100 billion). Therefore, MPI = $10 billion / $50 billion = 0.2.

If an Economy's Real GDP Increases from $100 Billion to $150