This is the premium question for this week: Consumption adds to aggregate demand and imports drain aggregate demand. The marginal propensity to consume (MPC) is conceptually the extra consumption that is induced for every extra dollar of national income. The marginal propensity to import (MPM) is similarly the extra spending on imports that is induced for every extra dollar of national income. If the MPC and MPM both rise by 0.1 then the impact on aggregate demand for every new dollar of national income generated will be neutral.
Answer: False