Syndicate
NE – Net Exports
When a country sells goods and services that have been internally produced to someone or to a company in another country, these sells are called exportations. Net Exports, or NE is simply the value of the total of all the exports minus the value of all the imports during a given period of time. When you use the focus of expenses to totalize the GDP, add up the net exports, NE.
You might wonder why only the net exports need to be added up. Economists usually do not explain why you need to subtract the imports from the exports in this equation. The following is the basic explanation as to why.
The purpose of adding up the expenses in order to obtain the GDP is to calculate how many dollars were spent on products done inside the borders of the country. The residents of the country incur in most of these expenses, but their products are also consumed in other countries. This is exactly what happens when they pay for the goods that you export to them. Therefore, you need to add EXP if you want to have a correct measure of expenses done on things the country produces internally.
You will need to subtract the imports of foreign goods to differentiate the total expenses that the residents of the country do in all the goods and services, of their expenses in goods and services produced internally. The total expenditure in all the goods and services, internal and foreign, are C, which represents Consumption. If you only want to have the part that is spend in stuff made internally, you will need to subtract the value of the imports, IMP, because all of the money spend in imports is money that is not spend on goods and services done inside of the country. Therefore, C – IMP provides the amount of money that the residents of the country spend on products that are made internally.
The result is that you can write your equation of expenses of the GDP, which totalizes all of the expenses on goods and services produced internally in this way:
Y = C – IMP + I + G + EXP
The order of the last equation usually changes when the imports and exports are going to be put together in this way:
Y = C + I + G + EXP – IMP
The reason to change the order is that the EXP – IMP quickly shows the commercial balance of the country. When EXP – IMP is positive, it means the country is exporting more then what they are importing; however when it is negative, it means the country is importing more than what it is exporting.
International commerce is very important and you should have a good understanding of it not only of the reasons by which the commercial balances can be positive or negative, but also of why you should not worry if the balance is negative.