Net Exports content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class. Subtopics Intro to Net Exports Determinants of Net Exports

1. Net Exports
Lower 6th Macro
Aggregate Demand

2. Intro to Net
Exports
Net Exports
Mr O’Grady

3. Intro to Net Exports
Definition: The value of the nation's total trade. It is the value of a nation's total
exports (X) of goods and services minus the value of all the goods and services it
imports (M)
Stat: Net exports made up -1% of UK GDP in 2018 (+29% for exports -30% for imports)
Recap : Net Exports are part of, but not all of, the balance of payments
BoP Breakdown:
Capital Account: Mainly records the movement of assets associated with migration or
acquisition/disposal of non-money assets
Financial Account: Records international investments and transactions in financial assets
Current Account: A record of all payments for trade in goods and services plus income flow it
is divided into four parts
Trade in goods, trade in services, income, and current transfers
N.B. Trade in goods + Trade in services = X – M
Key question: Why is net exports (X-M) the only part of the balance of payments
included in AD?
As the other components do not record new output, just the movement of already
accounted for assets

4. Determinants
of Net Exports
Net Exports
Mr O’Grady

5. Determinants of Net Exports
Exchange Rates: changes in exchange rates can affect the attractiveness of exports
to foreign households and imports to domestic households
Exchange rates: the value of one currency in terms of another
SPICED: Strong Pound, Imports Cheap, Exports Dearer
An increase in the value of the domestic currency means domestic consumers can convert a given amount
of their currency into a larger amount of a foreign one, allowing them to buy more imports. M increases.
Similarly foreign households can convert their currency into a decreased amount of domestic currency
meaning they can’t buy as many exports. X decreases.
WPIDEC: Weak Pound, Imports Dearer, Exports Cheap
Domestic households can afford fewer imports. M decreases
Foreign households can afford more exports. X increases.
Domestic Real income: As households get richer they buy more G&S, including
imports
The extent to which M rises from increased real income depends on a nation’s marginal
propensity to import (MPM)
Foreign Real income: Similarly, as foreigners get richer they buy more G&S, including our
exports

6. Changes in the world economy: As different economies change and develop they
tend to trade different imports and exports with the rest of the world
For the UK, as we export more services (strong positive values of YED) this will likely mean
our net exports improve as global income rises, relative to other countries
However, for developing countries that export more basic products, which have lower or
even negative YED, their net exports will likely worsen
Degree of protectionism: Falling protectionism means that free trade broadens,
giving rise to new export opportunities
However, protectionist measures can restrict exports
These include tariffs, quotas and regulations
International competitiveness: If domestic output becomes more competitive,
they are more attractive to all buyers. This can increase exports and reduce
imports
Price Competitive: our exports are cheaper than foreign alternatives
Non-Price Competitive: our exports are better quality compare to foreign alternatives

7. Where next?
Don’t forget to SUBSCRIBE!
Visit our website: www.smootheconomics.co.uk
Find more resources, extension materials,
details of courses, competitions, and more!
Follow our socials:
Instagram: @smootheconomics
Twitter: @SmoothEconomics
Facebook: @SmoothEconomics