If average annual household incomes increase by $5,000 and imports increase, on average by $400, what is the marginal propensity to import?

Question

Quizplus · Accepted Answer

The marginal propensity to import (MPI) measures the change in imports resulting from a change in income. To calculate the MPI, we divide the change in imports by the change in income:

MPI = Change in imports / Change in income

In this case, the change in imports is $400 and the change in income is $5,000.

MPI = $400 / $5,000 
MPI = 0.08

Therefore, the correct answer is B.

If Average Annual Household Incomes Increase by $5,000 and Imports