Net Export Demand

In an open economy foreign trade sector plays an important role. Every country exports surplus goods and services to the rest of the world and imports the goods and services it needs from the rest of the world. Exports refer to the goods and non-factor services it sold by one country to the rest of the world. Imports refer to the purchase of goods and non-factor services include banking, insurance, shipping and tourism. Net export is the difference between exports and imports of a country during a period of one year. Net export is a part of domestic product. It may be positive or negative. If exports exceed imports, it becomes positive and if imports exceed exports, it becomes negative.

Net exports = Exports- Imports

If we consider Govt. and rest of the world. Then the aggregate demand can be represented as follows

AD or Y = C+1+G+(X-M)

Where Y= National income

C= Household consumption.

I = Private investment.

G= Govt. expenditure on goods & services.

X = Exports

M= Imports.