What is the marginal propensity to import when M = 60 + 0.06Y? What is the relationship between the marginal propensity to import and the aggregate demand function?
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Marginal propensity to import indicates the extent to which imports are induced by changes in income of production.
It is given,
M= 60 + 0.06Y
M=M+MY
Here (m) Marginal propensity to import = 0.06
The marginal propensity to import negatively affects the aggregate demand function.
When income increase aggregate demand decreases. This is because the additional income is spent on foreign goods and not on domestic goods.
It is given,
M= 60 + 0.06Y
M=M+MY
Here (m) Marginal propensity to import = 0.06
The marginal propensity to import negatively affects the aggregate demand function.
When income increase aggregate demand decreases. This is because the additional income is spent on foreign goods and not on domestic goods.
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