Question

What is the marginal propensity to import when M = 60 + 0.06Y? What is the relationship between the marginal propensity to import and the aggregate demand function?

Which of the following statements are correct?

Statement 1: Marginal propensity to import is the fraction of additional income spent on imports.

Statement 2: It is given that M = 60 + 0.06Y. Therefore, marginal propensity to import (m) = 0.06.

विकल्प

• Marginal propensity to import is the fraction of additional income spent on imports.

• It is given that M = 60 + 0.06Y. Therefore, marginal propensity to import (m) = 0.06.

• Both marginal propensities to import are the fraction of additional income spent on imports and It is given that M = 60 + 0.06Y. Therefore, marginal propensity to import (m) = 0.06.

• None of the above

Answer 1

Both marginal propensities to import are the fraction of additional income spent on imports and It is given that M = 60 + 0.06Y. Therefore, marginal propensity to import (m) = 0.06.

Explanation:

In addition, The fraction of additional revenue spent on imports is known as marginal propensity to import. M 60 + 0.06Y is a given value.

As a result, the marginal propensity to import (m) equals 0.06. It reflects induced imports, which are a portion of total imports that are a consequence of income. Because the marginal inclination to import has a negative impact on the aggregate demand function, aggregate demand falls as income rises. Because the extra money is spent on foreign items rather than home goods, this is the case.