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Definition
The foreign trade effect refers to how changes in net exports impact an economy's aggregate demand. An increase in net exports (exports minus imports) leads to an increase in aggregate demand, while a decrease in net exports leads to a decrease in aggregate demand.
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Related terms
Trade Balance: The difference between the value of a country's exports and imports during a specific period.
Exchange Rate: The rate at which one currency can be exchanged for another currency.
Protectionism: Policies that restrict or limit international trade, such as tariffs or quotas.
