2.2.5 Net Exports Flashcards
Define net exports
Value of exports- value of imports
why are exports deducted
to calculate AD we are only concerned with demand and output generated within a country
what are the five causes of a change in net exports
- real incomes
- exchange rates
- changes in the state of the world economy
- the degree of protectionism
- non-price factors
outline the consequences of an increase in real incomes on net exports
- as consumer’s real income increases demand for goods and services rises
- this may lead to higher demand for imports (particularly consumer durables)
- this reduces net exports, worsening the trade balance and reducing AD
give two ev points for why a rise in real incomes may not reduce AD in this way
HIDO the marginal propensity to import (the amount of additional income households spend on imports)
HIDO there is a reduced incentive for UK firms to export (as they are driven by profits) as they can sell goods and services domestically, worsening the net trade balance
define exchange rates
the price of one currency expressed in terms of another currency
outline the consequences of a stronger pound on net exports
- the currency appreciates
- the currency becomes more expensive for foreign consumers to purchase so exports become less attractive
- imports from abroad become cheaper as one unit of currency can buy more of foreign currency
- net exports will fall, worsening the trade balance
- this reduces AD
how do changes in the world economy affect net exports
UK exports are heavily dependent upon the economic performance of other countries/trading partners
what would you expect to happen to demand for UK exports if there was a recession in a major trading partner
decrease - lower average incomes as fall in real GDP, so fall in demand for goods and services, including those from the UK
what would you expect to happen to demand for UK exports if there was high inflation in the economy
decrease as goods and services from the UK are more expensive
what is happening in the Eurozone and what affect has this had
the slowdown in the Eurozone has caused UK exports to fall. Chinese growth is slowing as China is heavily dependent upon Eurozone countries as an importer of their goods/services
what is the biggest economy in terms of global imports
US
which newly rich countries are increasing their demand for goods and services
BRICS nations
which is the biggest economy in terms of global exports
China, largely due to low costs
how does the degree of protectionism affect net exports
if there are high tariffs (taxes on imports), quotas (limit on the quantity of imports) or other restrictions on free trade, firms and consumers will find it difficult to export to other countries, negatively impacting the UK trade balance
