What does a marginal propensity in import decrease look like in a graph?
Thank you so much in advance - I understand the ramifications of the decrease was just curious as of what it would look like graphically.
To understand what a marginal propensity to import (MPI) decrease looks like graphically, we need to first understand what the MPI represents. The MPI measures the change in imports in response to a change in income.
Typically, in an open economy, imports increase as income increases. This positive relationship is reflected in the slope of the import function, which is usually upward sloping. This means that as income rises, imports also rise.
Now, when there is a decrease in the MPI, it means that for a given change in income, the increase in imports is lower than before. In other words, the economy is becoming less import-dependent.
On a graph, we can represent this decrease in MPI by a flatter slope of the import function. Instead of a steep upward-sloping line, the line representing imports will have a shallower slope.
To create a graph, we would typically plot income on the x-axis and imports on the y-axis. The original import function would show a steep upward slope, indicating a high MPI. Then, when the MPI decreases, the line representing imports would become flatter, showing a smaller increase in imports for a given change in income.
It's important to note that the shape and position of the import function will depend on various factors such as trade policies, exchange rates, and global economic conditions. So, the actual appearance of the graph may differ based on these factors.
I hope this explanation helps you understand how a decrease in marginal propensity to import would appear graphically!