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Net Exports and Equilibrium National Income | Net Exports and Aggregate Demand | International Trade - YouTube
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[11]
We are interested to know the
role of international trade in the
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determination of aggregate output.
[18]
Actually in the simplest Keynesian
analysis, we discussed that AD = C + I
[27]
+ G + NX . So, initially we discussed
that how consumption expenditures
[33]
and plan investment expenditures
affect the aggregate output level.
[37]
In the last lecture, we have
discussed the role of government.
[42]
Now, finally, we are including
the role of international trade.
[48]
It means that we are bringing in
NX (net exports) to our analysis.
[56]
In the previous case, we had discussed
that NX is equal to zero, but now, we
[63]
are saying that NX is not equal to zero,
and we are interested to know the impact
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of international trade on the economic
output or on the aggregate output level.
[78]
As you know, that international trade
also plays a key role in determining
[83]
aggregate output because net exports
are a component of aggregate demand.
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To analyze the effect of net
exports in the Keynesian cross
[92]
diagram, suppose, that initially
net export are equal to zero.
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We can say that NX1 is equal to zero.
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We can say that Y1AD = C + I + G + NX1.
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NX1 is the initial value
where NX1 is equal to zero.
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It means that we didn't include
the role of net exports of the
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role of international trade . So,
initially the economy was at point 1.
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Where, Y1 was the aggregate output level,
[126]
and 1 was the equilibrium position.
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Suppose that foreigners suddenly get
an urge to buy more American products.
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Suppose, people from Cyprus,
people from Turkey, they desire
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to get more American products.
[146]
They showed their interest to
buy more American products.
[150]
So that net exports rise to 100 billion.
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For example, NX2 is equal to 100.
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The curve will shift upward from Y1AD
to Y2AD, and now NX2 is equal to 600.
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Initially, it was 500 and now it is 600.
[172]
It mean that the value of net exports
has increased by 100 billion dollars.
[180]
The 100 billion dollars increase in
net export adds directly to aggregate
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demand and shifts the aggregate demand
function upward from Y1AD to Y2AD..
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That's why, the economy moves from point
1 to point 2, and the aggregate output
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arises by 200 billion from Y1 to Y2.
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Look at here, Y1 was
1000 and now Y2 is 1200.
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It means that now the economy
has moved from Y1 to Y2.
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This figure indicates that for
the planned investment expenditures
[223]
and government expenditures a rise
in net export leads to a multiplied
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rise in aggregate output, which is
equal to the expenditure multiplier.
[234]
In this case, its value is 2, change
in NX is equal to 100 change in Y divided
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by change in NX is equal to 200 divided
by hundred, and it is equal to two.
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So the value of multiplier is one divided
by one minus MPC and MPC is equal to 0.5.
[252]
When you divide these values,
you will get the answer 2.
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Therefore, changes in net exports can
be another important factor affecting
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fluctuations in aggregate demand.
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In the summarized way, we can say
that if there is an increase in net
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exports value, it will positively
affect the aggregate demand.
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If change in NX is
positive, for example, $100.
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It means the aggregate output will
increase two-fold or two times.
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Or simply, we can say that if the
value of net exports is positive,
[293]
the value of output will increase.
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