Answer :

Marginal propensity to import is the change in import induced by change in income of the country. It is the degree to which country changes its import in relation to change in GDP.

Given –


M = 60 + 0.06Y


It means marginal propensity to import is 0.06 which reflects that with 1 Rupee increase in income the import will increase with 0.06.


The marginal propensity to import affects the aggregate demand function negatively. With increase in income the aggregate demand decreases because additional income is spent on foreign goods and not on domestic products.


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