Exports and Imports (X-M)

A rise in the value of the pound will cause exports to fall and imports to rise. Therefore the trade balance will be reduced and vice versa. This has a negative effect of the current account.

Changes in the global economy affect UK AD as if the world economy is in decline then demand for exports will fall. Therefore AD will decrease due to this fall in exports. This might be mitigated by increased investment if the domestic economy is prospering. Although generally AD will fall in response to a declining world economy because consumers in other countries will have less disposable income. Therefore this will lead to lower real GDP. Non price factors that affect exports and imports include the quality of goods. If UK goods are of high quality then exports are likely to increase.