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How does foreign trade affect the aggregate demand of a country |
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Answer» As we all Know AD=C+I+G+Net Export,So when we are Computing AD which means calculating future demands of Commodity,& Commodity Demand can be come from anywhere like from household or foreign companies/Household etc and Net Export is (export-import),so shift in damand of Commodity from another which is Import Or Shift in demand of Commodity from our country which Export, can affect it. Because AD means TOTAL Future Demand Of All Commodity. A higher exchange rate tends to reduce net exports, reducing aggregate demand. A lower exchange rate tends to increase net exports, increasing aggregate demand. Foreign price levels can affect aggregate demand in the same way as exchange rates. |
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