The marginal propensity to import (MPM) measures the portion of each extra dollar of national income that a country spends on imported goods and services. It shows how changes in a country’s total income impact its spending on imports.

Formula: MPM = Change in imports / Change in national income = ΔM / ΔY

Key features:

• MPM is a leakage from the domestic economy. Money spent on imports does not stay within the country to stimulate local business.
• It reduces the open economy multiplier, as some spending flows out to other countries.
• The value of MPM is always between 0 and 1.
• In an open economy, the relationship is defined as: MPM + Marginal Propensity to Save (MPS) + Marginal Propensity to Consume (MPC) = 1.
• A higher MPM means that an increase in domestic spending has a smaller effect on growing the national income.
• For small, open economies that rely on imported raw materials, a high MPM can weaken the positive effects of expansionary fiscal policy.