Net trade (X-M)

• How is net trade calculated?

  Value of exports - value of imports
• How does real income affect the net trade balance?

  If incomes rise within an economy, there is a reduced incentive for firms to export because they can sell their goods and services in the domestic economy
• How do changes in the exchange rate affect the net trade balance?

  If the exchange rate rises against other currencies, net exports are likely to fall whilst imports will become more competitive
• How do changes in the state of the world economy affect the net trade balance?

  During recessions, there will be a fall in demand for exports
• How does the degree of protectionism affect the net trade balance?

  If there are high tariffs or other restrictions on trade, firms find it dificult to export to certain countries
• How do non-price factors affect the net trade of balance?

  Demand for exports and imports may also be impacted by transport costs as well as reliability