Marginal propensity to import
The marginal propensity to import (MPM) refers to the change in import expenditure that occurs with a change in disposable income (income after taxes and transfers). For example, if a household earns one extra dollar of disposable income, and the marginal propensity to import is 0.2, then of that dollar, the household will spend 20 cents of that dollar on imported goods and services.
Mathematically, the marginal propensity to import (MPM) function is expressed as the derivative of the import (I) function with respect to disposable income (Y).
In other words, the marginal propensity to import is measured as the ratio of the change in imports to the change in income, thus giving us a figure between 0 and 1.
The UK government assumes that UK citizens have a high marginal propensity to import and thus will use a decrease in disposable income as a tool to control the current account on the Balance of Payments.
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