Marginal Propensity To Import - MPM

Definition of 'Marginal Propensity To Import - MPM'


The amount imports increase or decrease with each unit rise or decline in disposable income. The marginal propensity to import is thus the change in imports induced by a change in income. An economy with a positive marginal propensity to consume is likely to have a positive marginal propensity to import. This is because a portion of goods consumed is likely to be imported.

MPM is calculated as dIm/dY, meaning the derivative of the import function (Im) with respect to the derivative of the income function (Y).

Investopedia explains 'Marginal Propensity To Import - MPM'


If the marginal propensity to import is 0.3, then an increase in income of $1 will result in an increase in imports of $0.30 ($1 x 0.3).

Countries that consume more imports as their incomes rise have a significant impact on global trade. If a country that imports significant amounts of goods runs into a financial crisis, the extent to which that country’s economic woes will impact exporting countries depends on its marginal propensity to import and the makeup of the goods imported. The level of negative impact on imports from falling income is greater when a country has a marginal propensity to import greater than its average propensity to import. This gap results in a higher income elasticity of demand for imports, leading to a drop in income resulting in a more than proportional drop in imports. 

Countries that have sufficient natural resources within their borders and have developed markets typically have lower marginal propensities to import. Countries that are dependent on imports have a higher marginal propensity to import.

 



comments powered by Disqus
Hot Definitions
  1. Cash and Carry Transaction

    A type of transaction in the futures market in which the cash or spot price of a commodity is below the futures contract price. Cash and carry transactions are considered arbitrage transactions.
  2. Amplitude

    The difference in price from the midpoint of a trough to the midpoint of a peak of a security. Amplitude is positive when calculating a bullish retracement (when calculating from trough to peak) and negative when calculating a bearish retracement (when calculating from peak to trough).
  3. Ascending Triangle

    A bullish chart pattern used in technical analysis that is easily recognizable by the distinct shape created by two trendlines. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher, while the second trendline connects a series of increasing troughs.
  4. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  5. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  6. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
Trading Center