---
title: "Marginal Propensity to Import | Principles of Economics"
description: "Marginal propensity to import is the fraction of extra income spent on imports, and it helps explain aggregate demand shifts in Principles of Economics."
canonical: "https://fiveable.me/principles-econ/key-terms/marginal-propensity-import"
type: "key-term"
subject: "Principles of Economics"
unit: "Unit 24"
---

# Marginal Propensity to Import | Principles of Economics

## Definition

Marginal propensity to import (MPI) is the fraction of each extra dollar of income that people spend on imported goods and services. In Principles of Economics, it helps show how income changes affect aggregate demand in an open economy.

## What It Is

Marginal propensity to import, or MPI, is the part of an extra dollar of income that gets spent on imports instead of domestic goods and services. If your income rises and you spend 20 cents of that new income on imported products, your MPI is 0.20.

In Principles of Economics, MPI shows up when you study an open economy, meaning an economy that trades with other countries. The idea is simple: when household income rises, not all of that spending stays inside the domestic economy. Some of it leaks out to foreign producers through imports.

That leak matters because imports are subtracted from aggregate demand. If consumers buy more imported phones, clothes, or food, domestic firms do not get that spending. So even when total income is rising, the boost to domestic output is smaller than it would be in a closed economy.

MPI is usually discussed alongside the multiplier. A higher MPI means a bigger share of new income leaves the circular flow, so each round of spending creates a smaller total increase in output. A lower MPI keeps more of the new income circulating at home, which makes the multiplier larger.

You can think of MPI as one reason economic growth does not fully echo through every part of the domestic market. Two countries can have the same rise in income, but if one imports a lot of consumer goods, its domestic spending boost will be weaker. That is why trade patterns, exchange rates, and the availability of local substitutes all matter when you talk about MPI.

A quick example makes it easier to see. Suppose income rises by $100 and households spend $30 of that on imported goods. The MPI is 0.30. The remaining $70 goes to domestic goods, saving, or other uses, so only part of the income increase raises domestic demand directly.

## Why It Matters

MPI is one of the cleanest ways to explain why aggregate demand does not rise one-for-one with income in an open economy. If you are tracing a shift in aggregate demand, MPI helps you see how much of new spending leaks abroad instead of supporting domestic production.

It also connects directly to multiplier problems. A higher MPI weakens the Keynesian multiplier effect because each new round of spending is smaller when people buy more imports. That shows up in questions about why a policy stimulus has a different effect in a country that imports a lot versus one that relies more on domestic production.

This term also helps with policy analysis. If a government tries to boost the economy with fiscal policy, the effect may be muted when consumers have a strong tendency to spend extra income on foreign goods. That is a realistic way to explain why stimulus does not always create the same impact everywhere.

You will also see MPI in graphs and short cases about rising consumer income, exchange rates, or import-heavy spending patterns. If the scenario says households are buying more imported cars or electronics after incomes rise, MPI is part of the explanation for why domestic aggregate demand shifts less than expected.

## Connections

### Imports

Imports are the actual goods and services bought from other countries, while MPI measures how much extra income gets spent on them. If imports rise after income increases, that is the behavior MPI is describing. In aggregate demand, this matters because imported spending leaves domestic producers out of the chain.

### Aggregate Demand

MPI affects aggregate demand because imports are subtracted from it. When households use more of their new income on foreign goods, domestic spending rises less, so AD shifts by a smaller amount. This makes MPI useful when you are explaining why AD changes differ across economies or policy scenarios.

### [Marginal Propensity to Consume](/principles-econ/key-terms/marginal-propensity-consume)

MPC measures how much of an extra dollar of income people spend overall, while MPI narrows that spending to imports only. A person can have a high MPC but still have a moderate MPI if most extra spending goes to domestic goods. Comparing the two helps you sort out where new income is going.

### [Keynesian Multiplier Effect](/principles-econ/key-terms/keynesian-multiplier-effect)

The multiplier is smaller when MPI is higher because more of each income round leaks out of the domestic economy. Instead of being respent on local output, some of it goes to foreign producers. That is why open-economy multiplier questions often ask you to identify MPI as one of the leakages.

## On the AP Exam

A problem set or quiz item will usually give you a change in income, spending, or imports and ask you to identify the MPI or explain its effect on aggregate demand. You may also have to compare two economies and decide which one has the smaller multiplier based on import behavior. On a graph, look for the part of the story where extra income leads to more spending on foreign goods, because that is the leakage MPI measures. In short-answer responses, use MPI to explain why domestic output rises less than total spending.

## Marginal Propensity to Import vs Marginal Propensity to Consume

MPI and MPC both describe what happens to extra income, but they track different destinations. MPC is the share of additional income spent on all consumption, while MPI is the share spent specifically on imports. A student might mix them up because both are marginal propensities, but only MPI tells you how much spending leaves the domestic economy.

## Key Takeaways

- Marginal propensity to import is the fraction of extra income spent on imported goods and services.
- In an open economy, MPI matters because imported spending does not directly support domestic producers.
- A higher MPI weakens the multiplier effect by creating a bigger leakage from the circular flow of income.
- MPI helps explain why aggregate demand shifts differently when consumer spending rises in a trade-heavy economy.
- If a scenario mentions more spending on foreign goods after incomes rise, MPI is part of the explanation.

## FAQs

### What is marginal propensity to import in Principles of Economics?

It is the share of an extra dollar of income that people spend on imported goods and services. In Principles of Economics, it helps show how income changes affect domestic spending in an open economy. A higher MPI means more of the new income leaks abroad instead of supporting domestic output.

### How is marginal propensity to import different from marginal propensity to consume?

MPC measures how much of extra income is spent on consumption overall, while MPI measures how much is spent on imports specifically. Since imports are only one part of consumption, MPI is usually smaller than MPC. They are connected, but they answer different questions about where income goes.

### Why does marginal propensity to import matter for aggregate demand?

Because imports reduce aggregate demand for domestic goods. If people use a larger share of new income to buy foreign products, domestic spending does not rise as much. That means the aggregate demand curve shifts less than it would in an economy with lower import spending.

### How do you use marginal propensity to import in a problem?

Look for a change in income and ask how much of that change is spent on imports. If a problem gives you a dollar amount or percentage, you can calculate the import share and use it to explain the size of the multiplier or the shift in aggregate demand. It is often a leakage in open-economy multiplier questions.

## Related Study Guides

- [24.4 Shifts in Aggregate Demand](/principles-econ/unit-24/4-shifts-aggregate-demand/study-guide/WHIWiP5s0vXODK6s)

## About This Document

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