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------------------------------------------------ If an increase in income of £150m leads to an increase in imports of £30m, what is the marginal propensity to import?

A. 0.2
B. 0.25
C. 0.3
D. 0.35
E. 150
F. 30

Answer :

To determine the marginal propensity to import (MPI), you need to understand that it represents the ratio of the change in imports to the change in income. The formula for calculating the MPI is:

[tex]\text{MPI} = \frac{\text{Change in Imports}}{\text{Change in Income}}[/tex]

Given in the problem:

  • Change in Income = £150 million
  • Change in Imports = £30 million

Now, plug these values into the formula:

[tex]\text{MPI} = \frac{30}{150}[/tex]

Simplify the fraction:

[tex]\text{MPI} = \frac{1}{5}[/tex]

[tex]\text{MPI} = 0.2[/tex]

So, the marginal propensity to import is 0.2.

Therefore, the correct option is (A) 0.2.

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