The marginal propensity to import (MPM) is the fractional change in

import An importer is the receiving country in an export from the sending country. Importation and exportation are the defining financial transactions of international trade. Import is part of the International Trade which involves buying and receivin ...

expenditure that occurs with a change in

disposable income Disposable income is total personal income minus current taxes on income. In national accounting, personal income minus personal current taxes equals disposable personal income or household disposable income. Subtracting personal outlays ( ...

(income after taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to import is 0.2, then the household will spend 20 cents of that dollar on imported goods and services. Mathematically, the marginal propensity to import (MPM) function is expressed as the

derivative In mathematics, the derivative is a fundamental tool that quantifies the sensitivity to change of a function's output with respect to its input. The derivative of a function of a single variable at a chosen input value, when it exists, is t ...

of the import (M) function with respect to disposable income (Y).

$\mathrm=\frac$

In other words, the marginal propensity to import is measured as the ratio of the change in imports to the change in income, thus giving us a figure between 0 and 1. Imports are also considered to be automatic stabilisers that work to lessen fluctuations in

real GDP Real gross domestic product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantit ...

. The UK government assumes that UK citizens have a high marginal propensity to import and thus will use a decrease in disposable income as a tool to control the current account on the balance of payments.

References

International trade theory Marginal concepts Import {{Macroeconomics-stub

See also

References