Marginal Propensity To Import - MPM

AAA

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.

 

RELATED TERMS
  1. Tax Exporting

    The raising of revenue for one jurisdiction through the levying ...
  2. Gas Exporting Countries Forum (GECF)

    An organization of the world's leading gas producers that was ...
  3. Export Incentives

    Monetary, tax or legal incentives designed to encourage businesses ...
  4. Organization Of Arab Petroleum ...

    An inter-governmental organization based in Kuwait that seeks ...
  5. Private Export Funding Corporation ...

    A single corporation created by the U.S. Treasury and the Export-Import ...
  6. Export Credit Agency - ECA

    A financial institution or agency that provides trade financing ...
Related Articles
  1. Investment Misselling A Global Problem
    Personal Finance

    Investment Misselling A Global Problem

  2. Interesting Facts About Imports And ...
    Economics

    Interesting Facts About Imports And ...

  3. Understanding Capital And Financial ...
    Bonds & Fixed Income

    Understanding Capital And Financial ...

  4. What Is International Trade?
    Personal Finance

    What Is International Trade?

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center