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Study Notes

Net Trade Balance and Aggregate Demand

AS, A Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

The net trade balance is measured as the total value of exported goods and services minus the total value of imported products.

A trade surplus means that X>M – therefore aggregate demand (AD) will increase.

A trade deficit means that M>X – therefore AD will fall. There is a net leakage from the circular flow of income.

If X=M, then the trade balance is zero, external trade will have a neutral effect on AD.

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