When a country’s income rises by Rs 100 crore, its spending on imports rises by Rs 20 crore and its consumption rises by Rs 80 crore. What is the marginal propensity to import?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → 0.2
Given:
Rise in income, ΔY = Rs 100 crore
Rise in imports, ΔM = Rs 20 crore
Rise in consumption, ΔC = Rs 80 crore
The marginal propensity to import (m) is the part of an extra rupee of income spent on imports.
\( \displaystyle m = \frac{\Delta M}{\Delta Y} = \frac{20}{100} \)
\( = 0.2 \)
The consumption figure is not needed: 80/100 = 0.8 is the marginal propensity to consume, worked out the same way. This question uses Determination of Income and Employment and Open Economy Macroeconomics together.
NCERT (2026-27): “National Income Identity for an Open Economy … The demand for imports depends on domestic income (Y) and the real exchange rate (R ). Higher income leads to higher imports. …”
“Here m is the marginal propensity to import, the fraction of an extra rupee of income spent on imports, a concept analogous to the marginal propensity to consume.” |
