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FARM PROBLEM: The short-run situation in which weather variability creates large fluctuations in farm prices, combined with the long-run situation in which technological advances increase production capabilities even though the demand for agricultural production declines relative to the growth of the overall economy. Taken together these two situations lead to highly unstable farm incomes that tend to decline over time. The solution to this problem has been significant government intervention in the agricultural industry, especially through assorted subsidies and price floors.

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NET EXPORTS OF GOODS AND SERVICES:

The official item in the National Income and Product Accounts maintained by the Bureau of Economics Analysis measuring net exports by the foreign sector. Net exports of goods and services is the smallest of the four expenditures, averaging around 2 percent of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports and negative when exports are less than imports. In recent years, net exports of goods and services have been negative. The other official expenditures included in the National Income and Product Accounts are personal consumption expenditures, gross private domestic investment, and government consumption expenditures and gross investment.
Net exports of goods and services is the official government measure of net exports with the foreign sector, the difference between exports and imports. It seeks to quantify that portion of gross domestic product that is purchased by the foreign sector. These expenditures include a wide range of exports and imports of goods and services, from exports of cars to imports of chocolate, from exports of educational services to imports of foreign films, from exports of wheat to imports of precision tools.

Exports and Imports

Net exports of goods and services is separated into two halves in the National Income and Product Accounts: exports and imports. Although net exports are only about 2 percent of gross domestic product, exports and imports individual are about 11 to 13 percent.
  • Exports, goods that are produce in the domestic economy and purchased by the foreign sector, is divided into two subcategories in the National Income and Product Accounts: goods and services. Goods are over two-thirds of exports and services are the remaining one-third.

  • Imports, goods that are produce in the foreign sector and purchased by the domestic economy, is also divided into two subcategories in the National Income and Product Accounts: goods and services. Goods are about 85 percent of imports and services are the remaining 15 percent.

Subtracting Imports

In theory, the official entry in the National Income and Product Accounts should be exports of goods and services rather than NET exports of goods and services. In practice however, imports are subtracted from exports as a means of adjusting the three domestic expenditures for import purchases.

Personal consumption expenditures, gross private domestic investment, and government consumption expenditures and gross investment are not just expenditures on domestic production. These expenditures also include imports. For example, the purchase of a Hot Momma Fudge Bananarama Ice Cream Sundae by Duncan Thurly, includes both domestic production and imports. The ice cream is produced domestically in Wisconsin. The almond sprinkles come from California. However, the bananas and the chocolate (used for the hot fudge) are imported from South America.

As a matter of fact, a great many of the goods that might seem to be domestically produced use imported components. This means that the official measures of consumption, investment, and government purchases include both domestic production and imports. The problem is determining how much of the production is domestic and how much is imported. This is difficult, at best, and often impossible on a good-by-good case. Fortunately, total imports are known. As such, it is easier to subtract all imports, all at once from total expenditures. This subtraction is conveniently done relative to exports, generating the term net exports.

Three More Expenditures

The number crunchers at the Bureau of Economic Analysis separate gross domestic product into expenditures by the four macroeconomic sectors (household, business, government, and foreign). Net exports of goods and services are those by the foreign sector. The official entries in the National Income and Product Accounts for the other three are: personal consumption expenditures (household), gross private domestic investment (business), and government consumption expenditures and gross investment (government).
  • Personal Consumption Expenditures: The official measure of consumption expenditures on gross domestic product by the household sector. Personal consumption expenditures average about 65 to 70 percent of gross domestic product. These expenditures come in one of three varieties: (1) durable goods, (2) nondurable goods, and (3) services.

  • Gross Private Domestic Investment: The official measure of investment expenditures on gross domestic product by the business sector. Gross private domestic investment averages about 15 percent of gross domestic product. These expenditures come in two broad categories: (1) fixed investment and (2) changes in business inventories.

  • Government Consumption Expenditures and Gross Investment: The official measure of government purchases for gross domestic product by the government sector. Government consumption expenditures and gross investment also averages about 15 percent of gross domestic product. These purchases are divided into two groups: (1) federal and (2) state and local.

<= NET EXPORTS LINENET FOREIGN FACTOR INCOME =>


Recommended Citation:

NET EXPORTS OF GOODS AND SERVICES, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: December 11, 2017].


Check Out These Related Terms...

     | personal consumption expenditures | gross private domestic investment | government consumption expenditures and gross investment |


Or For A Little Background...

     | gross domestic product, expenditures | exports | imports | foreign sector | gross domestic product | production | product markets | National Income and Product Accounts | Bureau of Economic Analysis | National Bureau of Economic Research |


And For Further Study...

     | macroeconomic sectors | circular flow | business cycles | gross domestic product, ins and outs | gross domestic product, income | gross domestic product, welfare | net domestic product | national income | personal income | disposable income | gross national product | real gross domestic product | unemployment | inflation | aggregate market | aggregate expenditures | four-sector, three-market circular flow |


Related Websites (Will Open in New Window)...

     | Bureau of Economic Analysis | World Trade Organization | U.S. International Trade Administration | NAFTA Secretariat |


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