Imports, and thus net exports, are commonly assumed to be totally autonomous in the introductory analysis of Keynesian economics. That is, any induced imports that might realistically exist are ignored. Doing so not only simplifies the analysis, but also places the focus on how and why autonomous imports change, and how such changes affect the macroeconomy. More sophisticated, and realistic, analysis then includes induced imports.

Induced imports are reflected by the slope of the imports line, which is the marginal propensity to import (MPM). This negative value of the MPM thus enters into the slope of the net exports line and the aggregate expenditures line',500,400)">aggregate expenditures line, which then affects the value of the expenditures multiplier, as well.

Exports Minus Imports

The amount of exports sold to the foreign sector is theoretically and realistically unaffected by the level of domestic income or production. That is, exports are totally autonomous. They are affected by what transpires in the foreign sector not in the domestic economy. For example, an increase in U.S. national income is NOT going to induce a change in exports.

In contrast the amount of imports purchased from the foreign sector is induced by the level of domestic income and production. A major component of induced imports is induced consumption. That is, imports are actually part of the consumption expenditures undertaken by the household sector. When the household sector receives more income, then (based on the fundamental psychological law) it increases consumption expenditures. Some of these expenditures are for domestic production and some for imports. More income, means more of both types.

Of course, imports also consist of investment expenditures by the business sector and government purchases by the government sector. Both of these are induced by income and production, as well. And both of these are used to purchase both domestic production and imports.

Hence, imports are induced by income and production. However, because imports are subtracted from exports to derive imports, an income induced increase in imports means a decrease in net exports.

Induced: A Line

Imports Line

The red line, labeled M in the exhibit, is the positively-sloped imports line for the equation: M = 0 + 0.075Y. This line indicates that greater levels of income induce more imports.

In this case, autonomous imports happen to be zero as the imports line emerges from the origin. But autonomous imports could just as easily be a positive amount.

Other Induced Expenditures

• Consumption is unquestionably the most important induced expenditure. It is not only the largest of the four aggregate expenditures, but it is also the most induced of the four. It captures the fundamental psychological law and triggers the largest change in expenditures resulting from a change in income or production.


• Investment is induced by income because an expanding economy generally boosts business profit, which is then used for investment expenditures on capital goods.


• Government purchases are induced by income and production because extra income generates more tax revenue (especially state and local tax revenue), which is then used by government to finance expenditures.