Net Exports

Exports include all expenditure to buy goods produced in this country for final use in other countries. However, once we begin to consider international trade, we must observe that the three components mentioned already -- consumption, investment and government spending -- include a component of imported goods and services. Thus, they are categories of expenditure on world product, not on the product of the home country. But it is expenditure on the product of the home country that we wish to focus on, in this chapter anyway. There are two ways to remedy this difficulty. First we could change the definitions of consumption, investment and government purchases to include only spending on domestic production. In practice, though, these statistics would not be easy to get. The alternative and more practical way is to take the imports back out when we consider international trade and expenditure -- that is, to treat only net exports, exports minus imports, as a contribution to expenditure on domestic production. That is what we do.