REAL GROSS DOMESTIC PRODUCT: The total market value, measured in constant prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that real gross domestic product is measured in constant prices, the prices for a specific base year. Real gross domestic product, also termed constant gross domestic product, adjusts gross domestic product for inflation. You might want to compare real gross domestic product with the related term nominal gross domestic product.
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AUTONOMOUS NET EXPORTS:
Net exports by the foreign sector that do not depend on income or production (especially national income or gross domestic product). That is, changes in income do not generate changes in net exports. Autonomous net exports are best thought of as net exports that the foreign sector undertakes independent of income. They are measured by the intercept term of the net exports line. The alternative to autonomous net exports is induced net exports, which do depend on income. Autonomous net exports are net exports by the foreign sector that are unrelated to and unaffected by the level of income or production. This is one of two basic classifications of net exports. The other is induced net exports, net exports that are based on the level income or production. In other words, net exports can be divided into: (1) expenditures on final goods which are undertaken by the foreign sector regardless of the level of aggregate production and (2) an adjustment of expenditures (more or less) that results because aggregate production and income changes.
While autonomous net exports are unaffected by income and are held constant for the construction of the net exports line, they are not absolutely constant, they do change. Autonomous net exports are affected by an assortment of factors and influences--net exports determinants--such as foreign currency exchange rates, global economic conditions, and trade policies. Changes in these determinants cause changes in autonomous net exports, which shift the net exports line as well as the aggregate expenditures line and disrupt whatever equilibrium might exist.
Net exports are commonly assumed to be totally autonomous in the introductory analysis of Keynesian economics. That is, any induced net exports that might realistically exist are ignored. Doing so not only simplifies the analysis, but also places the focus on how and why autonomous net exports change, and how such changes affect the macroeconomy. More sophisticated, and realistic, analysis then includes induced net exports.
Exports Minus ImportsNet exports are the difference between exports and imports, or exports minus imports. Exports are goods produced by the domestic economy and purchased by the foreign sector. Imports are goods produced by the foreign sector and purchased by the domestic economy (that is, the domestic household, business, and government sectors).
The amount of exports sold to the foreign sector is theoretically and realistically unaffected by the level of domestic income or production. That is, exports are totally autonomous. They are affected by what transpires in the foreign sector not in the domestic economy. For example, an increase in U.S. national income is NOT going to induce a change in exports.
In contrast the amount of imports purchased from the foreign sector is induced by the level of domestic income and production, as well as an autonomous component. As such, autonomous net exports is the combination of autonomous exports and autonomous imports. Or better yet, autonomous exports minus autonomous imports.
Autonomous: An EquationOne way to provide an illustration of autonomous net exports (and the relation to induced net exports) is with a general linear net exports equation, such as the one presented here:where: NX is net exports, Y is income (or aggregate production), m is the intercept, and n is the slope.
As with any linear equation, the two key parameters that characterize this net exports equation are slope and intercept. Autonomous net exports are indicated by the intercept of the net exports equation. Induced net exports are then indicated by the slope.
Should net exports be totally autonomous or at least assumed to be so, and induced imports ignored, then the slope of the net exports equation is zero (n = 0). In this case, net exports are equal to $m, the difference between autonomous exports and autonomous imports, at all levels of income.
- An Autonomous Intercept: The intercept of the net exports equation (m) measures the amount of net exports undertaken if income is zero. If income is zero, then net exports is $m. The intercept is generally assumed and empirically documented to be positive (0 < m). It is conceptually identified as autonomous net exports. This is the difference between autonomous exports and autonomous imports.
- An Induced Slope: The slope of the net exports equation (n) measures the change in net exports resulting from a change in income. If income changes by $1, then net exports change by $n. This slope is generally assumed and empirically documented to be less than zero, but greater than negative one (-1 < n < 0). Because imports are induced and exports are not, this slope is actually the negative of the value of the marginal propensity to import (MPM), or negative induced imports.
Autonomous: A Line
Another common way to identify autonomous net exports is with a net exports line, such as the one presented in the exhibit to the right. The red line, labeled X-M in the exhibit, indicates net exports, the difference between exports and imports. The vertical intercept of this line indicates autonomous net exports and the negative slope indicates induced net exports.
|Net Exports Line
Because net exports are the difference between exports and imports, this line can be divided into its two component parts--exports and imports.
When all is said and done, and when imports are subtracted from exports, the net exports line is negatively sloped. A click of the [Net Exports] button returns the original net exports line. The net exports line in this case reflects autonomous net exports as the intercept, which is positive autonomous exports, and induced net exports, which is negative induced imports.
- Autonomous Exports: A click of the [Autonomous Exports] button demonstrates the first component. Because exports depend on actiivity in the foriegn sector and not the domestic economy, exports are autonomous--completely and totally. Hence the exports line is horizontal, with a zero slope. Autonomous exports are equal to $1 trillion at every level of domestic income and production.
- Induced Imports: A click of the [Induced Imports] button demonstrates the second component. The resulting red imports line is positively sloped, with the slope being induced imports. In this case, autonomous imports happen to be zero as the imports line emerges from the origin. But autonomous imports could just as easily be a positive amount.
Net Exports DeterminantsAutonomous net exports, like other autonomous expenditures, are important to Keynesian economics not because they are unaffected by income, but because the ARE affected by a host of nonincome factors, especially foreign currency exchange rates, global economic conditions, and foreign trade policies. These nonincome influences on net exports are termed net exports determinants.
These determinants, similar to those for other relations in the study of economics, cause a change in the underlying net exports-income relation. From a graphical perspective, these determinants cause the net exports line to shift, which effectively means that the intercept of this line changes. More generally, these determinants cause a change in autonomous net exports.
Three of the more important net exports determinants are:
- Exchange Rates: Currency exchange rates are the prices of one currency in terms of other currencies. For example, one U.S. dollar might be able to purchase 100 Japenese yen, giving a currency exchange rate of one hundred yen per dollar. Changes in currency exchange rates affect the ultimate purchasing price of imports and exports. Should one dollar purchase more Japanese yen, then the price of Japanese imports into the U.S. effectively declines, which would increase imports. At the same time, the price of U.S. exports to Japan effectively increases, with would decrease exports. The end result is a decrease in autonomous net exports.
- Global Economic Conditions: While exports are autonomous with respect to domestic income and production, they tend to be induced by foreign sector income and production. To the extent that the global economy is prosperous, with expanding income, exports to the foreign sector are bound to increase. These exports are induced by foreign sector income, but autonomous for domestic sector income and production.
- Trade Policies: Governments, both the domestic government and those in the foreing sector, are inclined to undertake policies that affect foreign trade--exports and imports. Most nations seek to promote their exports while restricting imports. To the extent that these domestic policies are successful, autonomous net exports increase. However, to the extent that similar trade policies in other countries, then autonomous net exports are bound to decrease.
Other Autonomous ExpendituresNet exports are one of four expenditures on aggregate production in the macroeconomy. The other three--consumption expenditures, investment expenditures, and government purchases--also have important autonomous components. While autonomous net exports can be a source of business-cycle instability, the autonomous components of these other expenditures (especially investment) are generally more important in Keynesian economics.
Autonomous and induced expenditures work together in the macroeconomy. Autonomous expenditures (usually investment, but also net exports) set in motion business-cycle instability; they trigger expansions and contractions of the macroeconomy. Induced expenditures (especially consumption) then magnify and accelerate these changes.
- Autonomous consumption is key factor in the analysis of business-cycle instability in large part because consumption is the largest of the four expenditures. While business cycle ups and downs are usually attributable to investment, more than a few can be traced back to autonomous changes in consumption expenditures. While these autonomous expenditures are unrelated to income, they are influenced by other factors, such as interest rates, consumer confidence, and wealth.
- Autonomous investment is key factor in the analysis of business-cycle instability. Business cycle ups and downs can often be traced back to autonomous changes in investment expenditures by the business sector. While these autonomous expenditures are unrelated to income, they are influenced by other factors, such as interest rates, technology, expectations, and wealth.
- Although some degree of government purchases are induced by income, the government sector is also inclined to change spending in response to factors other than income. Autonomous government purchases result from these other influences and are perhaps most important in the analysis of fiscal policy designed to correct business cycle ups and downs.
AUTONOMOUS NET EXPORTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: March 4, 2024].
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