Aggregate Expenditure Model
What is Net Exports?
Net exports is defined as the total value of exports take away the total value of imports. Value considers both the volume and price of exports and imports.
Exports - money flowed into Australia from overseas in exchange for goods or services. For example, the export of iron ore to China.
Imports - money flowed out from Australia to overseas in exchange for goods or services. For example, the import of a Japanese made Toyota vehicle into Australia.
What are the Factors of Net Exports?
The factors of Net Exports are an abbreviation known as BOX-TT.
Position of the Business Cycle - High domestic economic activity such as an upswing or boom phase will encourage larger imports into Australia
Positive of the Overseas Business Cycle - High economic activity from Australia's trading partners will encourage more demand for Australia's exports.
Exchange Rate - The exchange rate determines the competitiveness of Australia's exports and imports. (more can be found in the Unit 3 Section)
Appreciation - positions exports as more expensive for overseas buyers and hence, less internationally competitive while simultaneously making imports cheaper and more competitive, resulting in a decrease of net exports.
Depreciation - positions exports as less expensive for overseas buyers and hence, more internationally competitive while simultaneously making imports more expensive and less competitive, resulting in an increase of net exports.
Terms of Trade - measures a ratio of export prices to import prices. An increase in Terms of Trade will increase net exports as it means export prices are greater relative to imports and vice versa.
Tariffs and other protectionist measures - Protectionism decreases imports and hence, increases net exports