The net export function

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The net export function
We assume that exports (X)depend on
macroeconomicconditions experiencedby trading
partners. Imports (M) depend on thehealth of
the domestic economy
X M/GDPis an index of openness.
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The import function

• ?Definitions
• M is imports
• X is exports
• E is net exports. Note thatE X - M
• MPI m is the marginal propensity to import out
  of national income (Y)

?The import function is given by M mY .10Y
M
Slope m
100
m ?M/?Y, where0lt m lt 1
Y
1,000
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• Export function could shift down due to
• Appreciation of the domestic currency against
  foreign currencies, ceteris paribus.
• Falling GDP among trading partners

X
Xa
Exports
0
Y GDP