Study Notes
Net Trade Balance and Aggregate Demand
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 20 May 2017
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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