An increase in the marginal propensity to import will
A)raise imports and raise equilibrium income.
B)lower imports and raise equilibrium income.
C)lower the multiplier and reduce equilibrium income.
D)raise the multiplier and reduce equilibrium income.

Question

Quizplus · Accepted Answer

An increase in the marginal propensity to import means that a larger portion of additional income will be spent on imports, decreasing the amount that contributes to domestic demand and increasing leakages from the circular flow of income. This decrease in the spending multiplier will cause a reduction in equilibrium income.

An Increase in the Marginal Propensity to Import Will