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Variable Net Exports

Variable Net Exports. Chapter 24 Appendix. © 2006 Thomson/South-Western. Net Exports and Income. The amount of U.S. output purchased by foreigners depends not on the U.S. level of income but on income levels in their own countries. Exhibit 12: Imports, Exports, Net Exports. (a).

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Variable Net Exports

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  1. Variable Net Exports Chapter 24 Appendix © 2006 Thomson/South-Western

  2. Net Exports and Income • The amount of U.S. output purchased by foreigners depends not on the U.S. level of income but on income levels in their own countries

  3. Exhibit 12: Imports, Exports, Net Exports (a) • Autonomous export function is shown in panel (a)

  4. Exhibit 12: Imports, Exports, Net Exports • Imports are • positively related to income, as shown in panel (b).

  5. Exhibit 12: Imports, Exports, Net Exports • Net exports are negatively related to income, as shown in panel (c). Net exports are zero when disposable income is $9.0 trillion.

  6. (a) Exhibit 12: Imports, Exports, Net Exports • When disposable income increases, U.S. consumers spend more on all goods and services, including imported goods and services: the relationship between imports and income is positive as shown by the upward sloping import function, M, in the middle panel • What matters in terms of total spending on U.S. products are exports, X, minus imports, M, or net exports • By subtracting the import function in the middle panel from the export function in the top panel, we derive the net export function, depicted as X – M in the bottom panel

  7. X" – M" X' – M' Exhibit 13: Shifts in Net Exports • If the value of the dollar increases relative to foreign currencies, foreign products become cheaper for Americans and U.S. products become more expensive for foreigners. • This implies that imports increase at every level of income so net export function shifts from X – M down to X' – M‘ • A decline in the dollar’s value will have the opposite effect, increasing exports and decreasing imports  upward shift of the net export function from X – M to X” – M” 0.9 Real disposable income (trillions of dollars) Real net exports (trillions of dollars) 0 3.0 9.0 15.0 X – M - 0.9

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