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If exports fall while imports rise, what happens to the aggregate demand(AD) curve?

If exports fall while imports rise, what happens to the aggregate demand(AD) curve?

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Answer #1

As Aggregate expenditure basically is a sum of consumption , investment , government expenditure and net exports .

So AE = C + I + G + NX

So if imports rises and exports falls , this will lead to decrease in net exports ( N X ) which is a one of the primary part of aggregate expenditure . So due to decrease in net exports , there will be leftward in the IS in ISLM model , in other words there is a contractionary fiscal policy . Hence due to leftwards shift in IS model , Aggregate demand ( AD ) will also shift leftward in AD AS model

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