The Marginal Propensity to Import and the Spending Line
Note that the aggregate demand curve. the blue C + 1+ G + X curve in Figure 3 has a slight smaller slope than the black curve of domestic demand. The explanation of. this is that thier is 111 additional leak from spending into imports.
This new leakage arises from our assumption that 10 cents of every dollar of income is spent on imports. To handle this requires introducing a new term, the marginal propensity to import. The marginal propensity to import, which we Will denote MPm, is the increase in the ‘dollar value of imports for each $1 increase in GDP.
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