AD Net Exports (X-M)

Question 1

what are exports

Answer 1

the total value of DOMESTICALLY produced goods + services which are sold ABROAD

Question 2

what are imports

Answer 2

the total value of goods and services bought from a FOREIGN country

Question 3

how are net exports calculated

Answer 3

the value of eXports MINUS the value of iMports (X-M)

Question 4

what affects net exports (4)

Answer 4

1. price of DOMESTIC g + s RELATIVE to the price of FOREIGN g + s
2. quality of DOMESTIC g + s RELATIVE to the quality of FOREIGN g + s
3. exchange rates / currency movements
4. income levels at home + abroad

Question 5

how does price of both g + s affect net exports

Answer 5

if price of domestic g + s is higher = discourages aggregate demand for exports = decrease in exports = decrease in net exports
if price of foreign g + s is higher = discourages aggregate demand for imports = decrease in imports = increase in net exports
visa versa

Question 6

how does quality of both g +s affect net exports

Answer 6

if quality of domestic g + s is lower = encourages aggregate demand for exports = increase in exports = increase in net exports
if quality of foreign g + s is lower= encourages aggregate demand for imports = increase in imports = decrease in net exports
visa versa

Question 7

what is the definition of the exchange rate

Answer 7

the price at which one currency is convertible into another

Question 8

what is the relationship between exports and net exports

Answer 8

positive: the higher the exports, the higher the net exports

Question 9

what is the relationship between imports and net exports

Answer 9

negative: as imports increase, net exports decrease

Question 10

how does currency movements increase net exports

Answer 10

appreciation = rise in value of currency = exports more expensive / imports cheaper = X falls + M rises = net exports fall

Question 11

how does currency movements decrease net exports

Answer 11

depreciation = fall in the value of currency = exports cheaper + imports expensive = X rises + M falls = net exports rises

Question 12

what is the definition of PED for im / exports

Answer 12

it measures the responsiveness of demand for im / exports due to a change in the price of exports

Question 13

What could be an evaluation point for net exports (8)

price, price, price, quality, exchange / currency movements, income, income, overall

Answer 13

1. Price = depends how price competitive the other goods are
2. the PED for the im / exports: PED for im / exports = relatively inelastic = smaller impact on demand to a change in price visa versa
3. PED: long-run goods tend to be more price elastic = bigger impact on demand
4. Quality = depends on the quality of the other goods
5. exchange / cm: depends if the other currency has increased / decreased
6. income: depends on the extent to which incomes at home / abroad have in / decreased
7. income: if there is a high MPS / low MPC - consumers may not spend this increase in income to consumer (visa versa)
8. Overall: depends on whether the fall is temporary or more long-term