FOREIGN TRADE AND MACROECONOMIC EFFECTS OF EXPORTS Cover Image
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FOREIGN TRADE AND MACROECONOMIC EFFECTS OF EXPORTS
FOREIGN TRADE AND MACROECONOMIC EFFECTS OF EXPORTS

Author(s): Tamara Todorova
Subject(s): Economy, National Economy, Supranational / Global Economy, Financial Markets, Public Finances
Published by: ASERS Publishing
Keywords: export multiplier; propensity to import; interest rate; exchange rate; IS-LM model; national income model

Summary/Abstract: We find that the IS-LM model and the national income model reinforce each other in the context of exports and the export multiplier. Using simple differentiation techniques, we derive several relationships with respect to foreign trade. As predicted by Keynes, exports have a favorable effect on national income and the interest rate. Exports also increase the average price level and the exchange rate in the country. Through the mechanism of the export multiplier exports increase imports, savings, and consumption. A higher propensity to import reduces national income and fosters a negative trade balance. Similar is the effect of a higher exchange rate which discourages exports and encourages imports.

  • Issue Year: 13/2022
  • Issue No: 25
  • Page Range: 31 - 43
  • Page Count: 13
  • Language: English
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