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.
Answer & explanation
Correct answer: option 3
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.