AD + Net Exports

• The equation for aggregate demand is C consumption plus I investment plus G government spending plus x minus M which is net exports.
• If the value of the bracket increases, aggregate demand will shift to the right.
• Exports could increase and Imports could decrease to increase the value of the bracket and shift aggregate demand right.
• The reduction in imports due to a recession at home reduces input expenditure, increasing the value of the bracket and shifting it to the right.
• Exchange rates have a significant influence on the value of the bracket.
• There is a recession at home and we get poorer, which reduces the marginal propensity to import, leading to us importing less.
• If the value of the bracket was to fall, aggregate demand would shift to the left.
• A fall in exports or a rise in Imports would shift aggregate demand to the left.
• Aggregate demand is a measure of spending in the economy, not the quantity of exports sold or the quantity of imports bought into the country.
• Real disposable income earned abroad can influence the level of net exports in the economy.
• If there is very low levels of protectionism abroad, it might be easier for us to access International markets and to sell exports, earning more revenues.
• If there is strong protectionism abroad, it might prevent us from accessing International markets with our exports and reduce the amount of export Revenue we can generate.
• A strong exchange rate is bad for an economy in terms of AD, while a weak exchange rate is good for an economy in terms of AD.
• If there is protectionism at home, it might mean that the value of input expenditure is low, making it harder for us to generate export Revenue.
• Protectionism at home and abroad can affect the value of x and shift the AD curve to the right or left.
• Strong exchange rates lead to cheap Imports and expensive exports, while weak exchange rates lead to dear Imports and cheap exports.
• If there is a boom abroad, the marginal propensity to import is likely to increase, increasing the demand for UK exports and shifting aggregate demand to the right.
• If there is a recession abroad, especially in the countries of our major trading partners, the marginal propensity to import is likely to reduce, reducing the demand for UK exports and shifting aggregate demand to the left.
• Comparing inflation levels to other countries, not just looking at inflation in isolation at home, is crucial.
• Protectionism at home and abroad is a key determinant of import expenditure and export revenue, and relative inflation levels at home.
• If inflation in the UK is higher than inflation in other countries around the world, especially in the countries of our major trading parties, our exports will be less competitive and demand for exports will be lower, resulting in lower export revenue.
• If there is higher relative inflation, our input expenditure may rise, shifting 80 to the right as the value of x minus M increases.
• High relative inflation in the UK can shift 80 to the left, while low relative inflation can shift 80 to the right.
• Understanding the determinants of x minus M is crucial for students, as it helps them understand the link between exports, import expenditure, and inflation.
• If there is higher relative inflation at home, it's not just exports that become less competitive, but imports become more competitive, making it cheaper to buy goods and services from abroad than from home.
• Real disposable income earned at home can influence the level of net exports in the economy.
• If there is a boom in the UK, the marginal propensity to import in the UK is likely to rise, leading to the sucking in of imports and an increase in import expenditure, which is likely to increase m in the x minus M bracket and shift aggregate demand to the left.
• If the UK gets poorer, the marginal propensity to import in the UK is likely to fall, reducing import expenditure and shifting aggregate demand to the right.