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

Statement 1: Marginal 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.   

Both statements are correct.

The correct answer is option 3: Both statements are correct.

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