The marginal propensity to import is larger in Mexico than in the United States.As a result,
A) the expenditure multiplier is larger in the United States.
B) the expenditure multiplier is larger in Mexico.
C) there is less autonomous investment in Mexico.
D) there is more autonomous expenditure in Mexico.
E) induced expenditure is larger in Mexico.

Question

Quizplus · Accepted Answer

The marginal propensity to import (MPI) measures the amount by which an increase in income leads to an increase in imports. Since the MPI is larger in Mexico than in the United States, a given increase in income in Mexico is likely to lead to a larger increase in imports, and therefore less spending on domestic goods and services. This means that the expenditure multiplier, which measures the amount by which an initial increase in spending or investment leads to a larger increase in total output, will be smaller in Mexico than in the United States. Therefore, choice A is correct - the expenditure multiplier is larger in the United States.

The Marginal Propensity to Import Is Larger in Mexico Than