Fig. 50 Dynamic analysis.
An increase in export demand raises AGGREGATE DEMAND
and results in an increase in the equilibrium level of national income from Y1
. In moving from Y1
, a number of steps are involved. The initial increase in exports raises aggregate demand from A to B and produces an increase in real output from B to C. This extra output creates, via the MULTIPLIER EFFECT
, additional income and expands aggregate demand further from C to D. The extra spending in turn produces an increase in real output from D to E. These movements continue until a new equilibrium position is reached at point H.