AD ( 3 )

Question 1

How does the state of the world economy affect net exports?

Answer 1

• Higher a country’s real income, the more it tends to import, so net exports fall as real income rises
• A decline in economic growth in one of the UK’s export markets means there will be a fall in exports, this is because consumer spending in those economies will fall, due to falling incomes, meaning less will be exported from the UK
• A rise in economic growth in one of the UK’s export markets means there will be a rise in exports, this is because consumer spending in economies will increase, due to rising incomes, meaning more will be exported from the UK, rising AD, positive growth in net exports,

Question 2

What is protectionism?

Answer 2

• Act of guarding a country’s industries from foreign competition.
• If the UK deployed protectionist measures, the trade deficit will reduce, as the UK will import less due to tariffs and quotas on exports.
Export less long run, reduced international competition
Import less short run
• Protectionist measures lead to retaliation by other countries through their own protectionist measures, decreasing exports

Question 3

How do non price factors affect net exports?

Answer 3

• Advancements in technology in a country that lead to the production of higher quality goods would cause an increase in exports from that country, because people are willing to pay more for something if it is really good.
- Improvement to net exports.

Question 4

How do net exports affect AD?

Answer 4

Net exports tend to make up a small percentage of AD, so changes in net exports have a minor impact on AD.