19-11-2022, 10:33 PM
How to grow GDP through international trade?
#Econgram_Theory
![[Image: IMG-20221119-223236-233.jpg]](https://i.ibb.co/QJ0dNMd/IMG-20221119-223236-233.jpg)
Facts:
1) GDP = Consumer spending + Investment spending + Government spending + Net exports.
2) Net exports are the difference between a country’s exports and imports.
Analysis:
A country can increase net exports in 3 main ways:
1) Lowering the interest rate. Its drop leads to the country’s currency depreciation*. That decreases the cost of exports for foreigners and hence results in a rise in exports. Therefore, net exports hike. For example, in the U.S. net exports increased during the Great Recession of 2007-2009 due to sharp cuts in interest rates.
Explanation:
All else equal, when the interest rate is lowered => the country’s securities* are less profitable => foreign and domestic investment is discouraged => capital outflow => the supply of the country’s currency increases and demand decreases => the currency depreciates => the cost of exports lowers and cost of import raises => net exports hike.
2) Decreasing inflationary pressures. A lower price level lowers the cost of exports for foreigners, increasing net exports.
3) Protectionist* policies. Trade barriers such as tariffs and quotas decrease imports, contributing to net exports soaring.
The Econgram Exclusive
#Econgram_Theory
Facts:
1) GDP = Consumer spending + Investment spending + Government spending + Net exports.
2) Net exports are the difference between a country’s exports and imports.
Analysis:
A country can increase net exports in 3 main ways:
1) Lowering the interest rate. Its drop leads to the country’s currency depreciation*. That decreases the cost of exports for foreigners and hence results in a rise in exports. Therefore, net exports hike. For example, in the U.S. net exports increased during the Great Recession of 2007-2009 due to sharp cuts in interest rates.
Explanation:
All else equal, when the interest rate is lowered => the country’s securities* are less profitable => foreign and domestic investment is discouraged => capital outflow => the supply of the country’s currency increases and demand decreases => the currency depreciates => the cost of exports lowers and cost of import raises => net exports hike.
2) Decreasing inflationary pressures. A lower price level lowers the cost of exports for foreigners, increasing net exports.
3) Protectionist* policies. Trade barriers such as tariffs and quotas decrease imports, contributing to net exports soaring.
The Econgram Exclusive