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. Personal Finance

    Investment Misselling A Global Problem

  2. Trading within the different countries of the world could have positive and negative outcomes on the economy.
    Economics

    Interesting Facts About Imports And ...

  3. Bonds & Fixed Income

    Understanding Capital And Financial ...

  4. Personal Finance

    What Is International Trade?

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center