Google
Wednesday 
April 1, 2015 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
Today's Index
Yesterday's Index
253.6

Help us compile the AmosWEB Free Lunch Index. Tell us about your last lunch.

Skipped lunch altogether.
Bought by another.
Ate lunch at home.
Brought lunch from home.
Fast food drive through.
Fast food dine in.
All-you-can eat buffet.
Casual dining with tip.
Fancy upscale with tip.

More About the Index
Most humble month of the year?

January.
March.
June.
August.
October.
April.

ADB: An abbreviation that stands for either the African Development Bank the Asian Development Bank. The African Development Bank is a regional multilateral development institution engaged in promoting the economic development and social progress of its member countries in Africa. The Bank, established in 1964, started functioning in 1966 with its Headquarters in Abidjan, Cote d' lvoire. The Bank borrows funds from the international money and capital markets. Its shareholders are the 53 countries in Africa as well as 24 countries in the Americas, Europe, and Asia. The Asian Development Bank is a multilateral development finance institution dedicated to reducing poverty in Asia and the Pacific that engages in mostly public sector lending for development purposes in its developing member countries. They pursue this goal by helping to improve the quality of people's lives providing loans and technical assistance for a broad range of development activities. ADB raises fund through bond issues on the world's capital markets but they also rely on members' contributions. The ADB was established in 1966 and has its headquarters in Manila, Philippines. As of September of 2003, the ADB had 58 member countries.

Visit the GLOSS*arama


NET-EXPORT EFFECT:

A change in aggregate expenditures on real production, especially net exports from the foreign sector, that results because a change in the price level alters the relative prices of exports and imports. The net-export effect, also termed the international-substitution effect, is one of three effects underlying the negative slope of the aggregate demand curve associated with a movement along the aggregate demand curve and a change in aggregate expenditures. The other two are real-balance effect and interest-rate effect. The net-export effect is somewhat analogous to the substitution effect underlying the negative slope of the market demand curve.
The net-export effect is one of three basic effects that indicate why aggregate expenditures are inversely related to the price level. The net-export effect works like this: A higher price level increases the relative price of domestic exports to other countries while decreasing the relative price of foreign imports from other countries. This results in a decrease in exports and an increase in imports and thus a decrease in net exports. A lower price level has the opposite affect, causing a decrease in the relative price of domestic exports to other countries while increasing the relative price of foreign imports from other countries. This results in an increase in exports and a decrease in imports and thus an increase in net exports.

Along the Curve
Along the Curve

Before examining the details of the net-export effect, consider the specifics of what it does. A typical aggregate demand curve is presented in the exhibit to the right. The negative slope of the aggregate demand curve captures the inverse relation between the price level and aggregate expenditures on real production.

When the price level changes, the net-export effect is activated, which is what then results in a change in aggregate expenditures and a movement long the aggregate demand curve. To illustrate this process, click the [Change Price Level] button.

Aggregate demand is the demand for domestic production--goods and services produced by the domestic economy. A change in the price level is a change in the price of this domestic production. Other countries in the foreign sector produce goods and services, too. If the price level increases in one country, then the production in other countries becomes relatively cheaper.

If the domestic price level increases, then buyers in other countries (the foreign sector) are discouraged from buying as many exports from the domestic economy, switching instead to their own production or maybe exports from another country. In addition, domestic buyers (including the household, business, and government sectors) are motivated to switch from the now more expensive domestic production to the now relatively cheaper foreign imports.

This comparison of prices among different countries gives rise to the net-export effect. In particular, an increase in the price level increases imports and decreases exports, which results in a decrease in net exports. A decrease in the price level has the opposite effect on imports, exports, and net exports.

Suppose, for example, that Duncan Thurly has a daily craving for cheese that is satisfied by purchasing good ol' American-made cheese produced in the American state of Wisconsin. This daily purchase is, of course, an expenditure on domestic production. How might Duncan react if the domestic economy's price level increases, and with it the price of Wisconsin cheese? He might satisfy his cheese-craving with the imported variety, probably Swiss cheese from Switzerland. If so, then his expenditures on domestic production (Wisconsin cheese) falls as his purchase of foreign production (Swiss cheese) increases. The end result is that Duncan has become a living, breathing, cheese-eating application of the net-export effect.

<= NET DOMESTIC PRODUCTNET EXPORTS =>


Recommended Citation:

NET-EXPORT EFFECT, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2015. [Accessed: April 1, 2015].


Check Out These Related Terms...

     | slope, aggregate demand curve | interest-rate effect | real-balance effect | change in aggregate expenditures | change in aggregate demand | aggregate demand shifts |


Or For A Little Background...

     | aggregate demand curve | aggregate demand | aggregate expenditures | price level | aggregate demand determinants | aggregate demand and market demand | aggregate supply | gross domestic product | consumption expenditures | investment expenditures | government purchases | net exports |


And For Further Study...

     | AS-AD analysis | aggregate market | business cycles | circular flow | Keynesian economics | monetary economics | personal consumption expenditures | gross private domestic investment | government consumption expenditures and gross investment | net exports of goods and services |


Search Again?

Back to the WEB*pedia


APLS

State of the ECONOMY

Prime Rate
January 20, 2015
3.25%
WSJ Prime

More Stats

BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time touring the new suburban shopping complex hoping to buy either a genuine fake plastic Tiffany lamp or a microwave over that won't burn your popcorn. Be on the lookout for jovial bank tellers.
Your Complete Scope

This isn't me! What am I?

Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
"If we all did the things we are capable of doing, we would literally astound ourselves."

-- Thomas Edison

AMB
Adjusted Monetary Base
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2015 AmosWEB*LLC
Send comments or questions to: WebMaster