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Net Exports

Net Exports. Tom, Dean and James. Aggregate Demand. Aggregate Demand = Consumer Expenditure + Investments + Government Spending + (Exports-Imports) The total demand for a country’s goods and services at a given price level in a given time period. Net Exports.

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Net Exports

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  1. Net Exports Tom, Dean and James

  2. Aggregate Demand Aggregate Demand = Consumer Expenditure + Investments + Government Spending + (Exports-Imports) The total demand for a country’s goods and services at a given price level in a given time period.

  3. Net Exports Net exports measure the value of exports minus the value of imports. When net exports are positive, there is a trade surplus (adding to AD); when net exports are negative, there is a trade deficit (reducing AD). The UK has been running a large trade deficit for several years now. Trade Deficit: The value of imports exceeding the value of exports. Trade Surplus: The value of exports exceeding the value of Imports.

  4. Exports Exports are goods sold overseas are an inflow of demand (an injection) into our circular flow of income and spending adding to aggregate demand. These are goods that are produced in our economy that are sold to other countriesfor profit.

  5. Imports Imports of goods and services. Imports are a withdrawal of demand (a leakage) from the circular flow of income and spending. This means that the products bought in an economy are from abroad rather than products produced within a country.

  6. Factors effecting Net Exports Real disposable income abroad: a rise in income abroad is likely to result in an increase in exports. For example the US is one of the UK’s main trading partners. If people in the US enjoy higher disposable income they will buy more goods and services some of which will come from the UK. Real disposable income at home: in contrast a rise in income at home may result in a fall in exports, this is because firms may divert some products from the export market to the home market to meet the rise in domestic demand. Government restrictions on free trade: A country’s net exports may rise if other country’s governments remove trade restrictions. China, for instance, might be able to export more steel to the USA if the US government remove tariffs on Chinese steel. Such a move would lower the price of Chinese steel on the US market so make it much more price competitive. Tariffs: A tax on imports.

  7. Domestic price level: The value of exports may fall and the value of imports rise if the domestic price level rises relative to the price levels in the country’s trading partners. If domestically produced products become more expensive firms and households at home and abroad will switch from them to products made in other countries. The exchange rate: As well as being influenced by the inflation rates the price of exports and imports are also affected by exchange rate changes. A fall in the country’s exchange rate will reduce the price of exports and rise the price of imports. This, in turn, is likely to result in a rise in export revenue and a fall in imports expenditure. A rise in the exchange rate, on the other hand, is likely to result in a fall in net exports.

  8. News Story Below a news story of how the North East of England’s increase in productivity is allowing the UK to see some improvements in exports. These improvements are highly beneficial to the UK as the UK is seen as more of an importing country than an exporting country. http://www.bbc.co.uk/news/business-19293680

  9. Activity • Name 2 Factors that effect net exports. • Give the formula for aggregate Demand. • Where is there Trade Deficit and where is there Trade surplus?

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