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AGGREGATE MARKET SHOCKS: Disruptions of the equilibrium in the aggregate market (or AS-AD model) caused by shifts of the aggregate demand, short-run aggregate supply, or long-run aggregate supply curves. Shocks of the aggregate market are associated with, and thus used to analyze, assorted macroeconomic phenomena such as business cycles, unemployment, inflation, stabilization policies, and economic growth. The specific analysis of aggregate market shocks identifies changes in the price level (GDP price deflator) and real production (real GDP). However, changes in the price level and real production have direct implications for the unemployment rate, the inflation rate, national income, and a host of other macroeconomic measures.
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                           SLOPE, NET EXPORTS LINE: 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 | 
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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. | slope | = | rise
run | = | 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, http://www.AmosWEB.com, AmosWEB LLC, 2000-2019. [Accessed: February 17, 2019].
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ORANGE REBELOON
[What's This?]
Today, you are likely to spend a great deal of time looking for a downtown retail store hoping to buy either a combination CD player, clock radio, and telephone (with answering machine) or a revolving spice rack. Be on the lookout for high interest rates.
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In the Middle Ages, pepper was used for bartering, and it was often more valuable and stable in value than gold.
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"Stand up to your obstacles and do something about them. You will find that they haven't half the strength you think they have." -- Norman Vincent Peale
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APT
Arbitrage Pricing Theory
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