The value of the marginal propensity to import for an open economy will realistically fall between zero and one.

Question

Quizplus · Accepted Answer

The value of the marginal propensity to import represents the fraction of every additional unit of income that is spent on imported goods and services. Since an open economy is heavily reliant on trade and international transactions, it is realistic for the value of the marginal propensity to import to be greater than zero, indicating some level of imports in response to changes in income. However, it is unlikely for the value to be greater than one, as this would imply that the economy is importing more than it is earning in income, which is unsustainable in the long run.

The Value of the Marginal Propensity to Import for an Open