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Definition – What is marginal propensity to import (MPM)?
MPM is the amount that imports will increase (or decrease) for every increase (or decrease) in disposable income.
When income increases, those who benefit from it have a choice to either save or spend. If they spend 25% of their increase in income on imported items, their MPM would be 0.25.
Formula – How to calculate MPM
Marginal Propensity to Import = Change in Imports / Change in Income
Example
Imports increase by $300 in the same period where income increases by $1,500.
MPM = $300 / $1,500 = 0.2
Therefore, Marginal Propensity to Import is 0.2.
Sources and more resources
- Wikipedia – Marginal Propensity to Import – A short wiki entry on MPM.
- Investopedia – Marginal Propensity to Import – An article on marginal propensity to import.