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 Imports

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 Equation

NX

=

m

+

nY

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.

• 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

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.

• 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 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 Expenditures

• 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.