Net Exports. Net exports are exports minus imports (X-M).
An Increase in Net Exports
An increase in net exports will increase AD and shift AD right.
Factors Affecting Net Exports
Many factors could increase net exports:
- Exchange Rate. An exchange rate (XR) is the price of one currency in terms of another. A fall in the domestic country’s exchange rate means the domestic economy becomes more internationally price competitive, exports become cheaper and rise, imports become dearer and fall so AD rises.
- Rest of the World. Booms can spread from one country to another. A boom in country X means X’s income rises and their consumers demand more imports. Country Y exports to country X so Y’s exports rise and AD rises.
- Quality. If the quality of the domestic economy’s goods rises, foreign consumers will demand the domestic economy’s goods, exports rise and AD rises.
- Inflation. A fall in country X’s inflation makes X’s goods more internationally price competitive, exports are cheaper and rise, imports are dearer and fall so AD rises.
- Income. A fall in the domestic country’s income means consumers buy less luxury goods so imports fall and AD rises.