Marginal Propensity To Import - MPM

What is the 'Marginal Propensity To Import - MPM'

The marginal propensity to import (MPM) is 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).

BREAKING DOWN '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.

 

RELATED TERMS
  1. Marginal Propensity To Invest

    The ratio of change in investment to change in income. The marginal ...
  2. Average Propensity To Consume

    The average propensity to consume (APC) refers to the percentage ...
  3. Marginal Propensity To Consume ...

    A component of Keynesian theory, MPC represents the proportion ...
  4. Marginal Propensity to Save

    The proportion of an aggregate raise in pay that a consumer spends ...
  5. Average Propensity To Save

    The average propensity to save (APS) is an economic term that ...
  6. Disposable Income

    The amount of money that households have available for spending ...
Related Articles
  1. Markets

    Explaining Marginal Propensity to Consume

    The marginal propensity to consume is a measure of how much consumption changes when income changes.
  2. Markets

    Explaining Marginal Propensity To Save

    The marginal propensity to save is the proportion of a raise in pay that is saved instead of spent.
  3. Markets

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  4. Markets

    What's a Multiplier?

    A multiplier attempts to measure the effect of aggregate spending over time.
  5. Trading

    Margin

    Find out exactly what margin is and why it's important.
  6. Markets

    Macroeconomics: Supply, Demand and Elasticity

    By Stephen Simpson DemandDemand is driven by utility – the pleasure or satisfaction that a consumer obtains from consuming a good or service. Total utility is a function of the quantities ...
  7. Trading

    Margin Call

    Find out why a margin call is so important to investors.
  8. Markets

    Understanding Marginal Analysis

    Marginal analysis is the process of comparing a one-unit incremental cost increase of an activity with a corresponding increase in benefits.
  9. Markets

    Understanding Imports

    An import is a good or service that’s brought into one country from another.
  10. Markets

    Understanding Terms of Trade

    Terms of trade measures a country’s trading efficiency.
RELATED FAQS
  1. Under what circumstances might a merchant turn toward using a banker's acceptance?

    Understand the significance of the marginal propensity to consume, and learn which factors can lead to a change in the marginal ... Read Answer >>
  2. How does the marginal propensity to consume in the United States compare to other ...

    Learn how the marginal propensity to consume in the United States compares to that of other countries and why the United ... Read Answer >>
  3. How is marginal propensity to save calculated?

    Find out about marginal propensity to save, what the it indicates about a household and how to calculate a household's marginal ... Read Answer >>
  4. How does the income of a person influence their marginal propensity to save?

    Discover how an individual's income can generally influence his marginal propensity to save and his marginal propensity to ... Read Answer >>
  5. How does pork barrel spending hurt the economy?

    Learn what factors affect the marginal propensity to consume, how the MPC can be negative and why it plays a key role in ... Read Answer >>
  6. Marginal propensity to Consume (MPC) Vs. Save (MPS)

    Learn the significant roles that the marginal propensity to consume and the marginal propensity to save play in Keynesian ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center