Given below are some statements. Read them carefully and choose the correct statement (s) from the given options.

Statement 1: Propensity to import is the fraction of an extra rupee of income spent on imports.    

Statement 2: A positive NX implies a trade surplus and a negative NX implies a trade deficit.   

Only Statement 2 is correct.

The correct answer is option 2: Only Statement 2 is correct.

Statement 1: Propensity to import is the fraction of an extra rupee of income spent on imports.  This is false. Marginal propensity to import is the fraction of an extra rupee of income spent on imports. It is a concept analogous to the marginal propensity to consume.

Statement 2: A positive NX implies a trade surplus and a negative NX implies a trade deficit. This is true. NX is net exports (exports – imports). A positive NX (with exports greater than imports) implies a trade surplus and a negative NX (with imports exceeding exports) implies a trade deficit.