Answer to Question #135443 in Macroeconomics for KB

Question

What does a decrease in Marginal Propensity to Import result in?

Answer 1

A decrease in marginal propensity to import results to a multiplier increase and a given change in government spending( G) to have a larger effect on domestic output.

The marginal propensity to import is expressed as a proportion of disposable income. A decrease in disposable income for businesses and households decreases the demand for goods and services from abroad. This is to say that, a decrease in marginal propensity to import increases consumption expenditure on domestically produced output for a given income level. This in return decreases the import withdrawal from the circular flow of national income and increases national income.