Net exports and AD

• What is the equation for aggregate demand?

  Aggregate demand is represented as C + I + G + (X - M).
• What factors can shift the aggregate demand curve?

  Factors include changes in net exports, consumption, investment, and government spending.
• How can an increase in net exports affect aggregate demand?

  An increase in net exports will shift aggregate demand to the right.
• What happens to aggregate demand if the value of net exports decreases?

  If net exports decrease, aggregate demand will shift to the left.
• What must be specified when discussing changes in exports and imports?

  It is important to specify export revenues and import expenditures, not just quantities.
• How does real disposable income earned abroad affect net exports?

  Higher real disposable income abroad increases demand for exports, raising export revenues.
• What is the effect of a recession abroad on net exports?

  A recession abroad reduces the demand for exports, lowering export revenues.
• What happens to import expenditure during a boom in the UK?

  Import expenditure is likely to rise due to an increased marginal propensity to import.
• How does a recession at home affect import expenditure?

  A recession at home reduces the marginal propensity to import, lowering import expenditure.
• What is the impact of strong exchange rates on imports and exports?

  Strong exchange rates make imports cheaper and exports more expensive.
• What mnemonic helps remember the effects of strong exchange rates?

  The mnemonic "SPICE" helps remember that strong pound makes imports cheap and exports dear.
• What happens to demand for imports when the exchange rate is strong?

  Demand for imports will rise when the exchange rate is strong.
• How does a weak exchange rate affect exports?

  A weak exchange rate makes exports cheaper, increasing demand for exports.
• What is the effect of protectionism abroad on export revenues?

  Strong protectionism abroad reduces export revenues due to barriers to trade.
• How does low protectionism abroad affect net exports?

  Low protectionism abroad can increase export revenues by facilitating access to markets.
• What is the impact of strong protectionism at home on import expenditure?

  Strong protectionism at home can reduce import expenditure due to high tariffs and quotas.
• How do relative inflation levels affect export competitiveness?

  Higher relative inflation reduces export competitiveness, lowering demand for exports.
• What happens to import expenditure when there is higher relative inflation at home?

  Higher relative inflation at home can make imports more competitive, increasing import expenditure.
• What is the relationship between x - M and aggregate demand?

  If x - M increases, aggregate demand will shift to the right; if it decreases, aggregate demand will shift to the left.
• What are the key determinants of net exports (x - M)?

  • Real disposable income earned abroad
  • Real disposable income earned at home
  • Exchange rates
  • Protectionism at home and abroad
  • Relative inflation levels
• How do changes in net exports affect aggregate demand?

  • Increase in net exports shifts aggregate demand to the right
  • Decrease in net exports shifts aggregate demand to the left