Net Exports

Exports create domestic production, income, and employment due to foreign spending on U.S. produced goods and services.

Imports reduce the sum of consumption and investment by the amount expended on imported goods, so this figure must be subtracted so as to not overstate aggregate expenditures on U.S. produced goods and services.

Net Exports = Exports - Imports

Net exports are autonomous of GDP level

Determinants of Net Exports

1. Prosperity Abroad

Increased prosperity abroad causes people abroad to buy more US exports, increasing net exports

2. Tariffs

When trading partners impose high tariffs, amount of exports decreases

3. Exchange Rates

Depreciation of the dollar permits people abroad to obtain more dollars per unit of their currency.  Therefore, people abroad can buy more US exports.

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