Net Exports and Aggregate Expenditures Exports (X) create domestic production, income and...
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Transcript of Net Exports and Aggregate Expenditures Exports (X) create domestic production, income and...
Net Exports and Aggregate Expenditures
Exports (X) create domestic production, income and employment
Imports (M) represent goods and services produced abroad
In an open economy, aggregate spending is C+ Ig + Xn, where Xn = (X - M) Xn can be either positive or negative
©2013 McGraw-Hill Ryerson Ltd. 1Chapter 9.3
If GDP in other countries is growing, demand for our exports will increase
Our imports are dependent on our own GDP
Both imports and exports are affected by the exchange rate depreciation appreciation
2©2013 McGraw-Hill Ryerson Ltd. Chapter 9.3
(1)Domestic
output(GDP = DI)(billions)
(2)Exports
(X)(billions)
(3)Imports
(M) (billions)
(4)Net Exports,
Xn (2)- (3)
(billions)
(5)Marginal
propensity to import(MPM)
Δ(3)/Δ(1)
$370 $40 $15 $+25
390 40 20 +20 (20-15)/(390-370) = 0.25
410 40 25 +15 0.25
430 40 30 +10 0.25
450 40 35 +5 0.25
470 40 40 0 0.25
490 40 45 -5 0.25
510 40 50 -10 0.25
530 40 55 -15 0.25
550 40 60 -20 0.25©2013 McGraw-Hill Ryerson Ltd. 3Chapter 9.3
Marginal Propensity to Import (MPM) MPM = ΔM (import) / ΔGDP MPM is the slope of net export schedule
Open Economy Multiplier The closed economy the multiplier is
1/MPS Expenditure on imports is a leakage Open economy multiplier = 1/ (MPS +
MPM)
©2013 McGraw-Hill Ryerson Ltd. 4Chapter 9.3
©2013 McGraw-Hill Ryerson Ltd. 5Chapter 9.3
(1)Domestic
Output (and Income)
(GDP = DI),(billions)
(2)Aggregate
Expenditure for private economy
(no G)(C+Ig),
(billions)
(3)Exports
(X)(billions)
(4)Imports
(M) (billions)
(5)Net
Exports, Xn
(3)- (4) (billions)
(6)Aggregate
Expenditure for open economy
(no G)(C+Ig+Xn),(billions)
$370 $395 $40 $15 $+25 $420
390 410 40 20 +20 430
410 425 40 25 +15 440
430 440 40 30 +10 450
450 455 40 35 +5 460
470 470 40 40 0 470
490 485 40 45 -5 480
510 500 40 50 -10 490
530 515 40 55 -15 500
550 530 40 60 -20 510
Aggregate expenditureswith positivenet exports
(C + Ig+Xn)0
Aggregate expenditureswith negative netexports
(C + Ig+Xn)2
(C + Ig+Xn)1
Xn1
Xn2
Positive net exports
Negative net exports450 470 490
LO4 11-6©2013 McGraw-Hill Ryerson Ltd. 6Chapter 9.3
A decline in net exports decreases aggregate expenditures and reduces GDP
A rise in net exports increases aggregate expenditures and increases GDP
©2013 McGraw-Hill Ryerson Ltd. 7Chapter 9.3