March 18, 2018 

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GAME THEORY: An analysis that illustrates how choices between two plays affect the outcome of a "game." Game theory is commonly used in economics to illustrate interdependent decision-making among oligopoly firms. It illustrates that one firm makes a decision based on the decision expected from the other firm. One key conclusion from the game theory analysis is that firms often make decisions that are "second best" or the "lesser of two evils." The classic example of such a decision is the prisoners' dilemma, in which two prisoners both confess to a crime to avoid harsher punishment when not confessing would avoid any punishment.

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The negative slope of the net exports line is based on the marginal propensity to import (MPM). Because net exports are exports minus imports, the induced change in imports causes an opposite change in net exports. As such, the slope of the net exports line is negative, less than zero (but greater than negative one). The slope of the net exports line affects the slope of the aggregate expenditures line and thus also affects the magnitude of the multiplier process.
Net Exports Line
Net Exports Line
The net exports line shows the relation between net exports by the foreign sector and the level of aggregate domestic income or production. The income and production measures most commonly used are national income and gross domestic product.

A representative net exports line is presented in the exhibit to the right. This red line, labeled X-M in the exhibit, is negatively sloped, indicating that greater levels of income or production generate smaller levels of net exports by the foreign sector. This negative relation indicates that imports, which are subtracted from exports to derived net exports, are induced by an expanding economy.

The net exports line graphically illustrates the net exports-income relation for the foreign sector, which is then added to the consumption line to derive the aggregate expenditures line used in Keynesian economics to identify equilibrium income and production.

The slope of the net exports line presented here is negative. In fact, the slope of the net exports line is numerically equal to the negative of the marginal propensity to import. In this case the slope is equal to -0.075. The negative slope reflects induced net exports--more income means fewer net exports. Click the [Slope] button to illustrate.

To illustrate the equality between slope and the negative of the marginal propensity to import, consider the equations for each. The slope of the net exports line is specified as the "rise" over the "run." The rise is the change in net exports measured on the vertical axis and the run is the change in income measured on the horizontal axis. However, because exports are autonomous, the only income induced change in net exports comes from imports, in a negative way.

=change in net exports
change in income
= -change in imports
change in income
The marginal propensity to import (MPM) is the incremental change in net exports resulting from an incremental change in income.
MPM=change in imports
change in income
The negative slope of the net exports line is the marginal propensity to import, or the slope of the net exports line is the negative of the marginal propensity to import, on is the negative of the other.

The negative slope of the net exports line reflects induced net exports, which is net exports that depend on the level of income. If the aggregate economy has more income, then the foreign sector is induced to undertake fewer net exports. Of course, a drop in aggregate income induces the foreign sector to increase net exports.


Recommended Citation:

SLOPE, NET EXPORTS LINE, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2018. [Accessed: March 18, 2018].

Check Out These Related Terms...

     | net exports line | intercept, net exports line | consumption line | slope, consumption line | slope, investment line | slope, net exports line | induced net exports | autonomous net exports | marginal propensity to import |

Or For A Little Background...

     | net exports | exports | imports | net exports of goods and services | Keynesian economics | macroeconomics | foreign sector | national income | gross domestic product | determinants |

And For Further Study...

     | induced expenditures | autonomous expenditures | aggregate expenditures | aggregate expenditures line | derivation, consumption line | net exports determinants | Keynesian model | Keynesian equilibrium | injections | leakages | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |

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