If the marginal propensity to save equals 0.1 and the marginal propensity to import equals 0.3,an autonomous increase in exports of $1,000 would expand domestic income by $2,500 which leads to an increase in imports of $750.

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Quizplus · Accepted Answer

The multiplier is 1/(1-MPC-MPI) = 1/(1-0.1-0.3) = 2.5. So, an autonomous increase in exports of $1,000 would expand domestic income by $2,500. And, the increase in imports would be 0.3 * 2500 = $750.

If the Marginal Propensity to Save Equals 0