imports and exports (1 Viewer)

[wgy182]

Hey guys,
I am a bit confused on how domestic income levels influence imports and how oversea income level influence our exports?
I know rise in Australia income causes a rise in imports and a rise in oversea income tends to increase Australian exports but idk why tho.
Can anyone clarify this?

Thanks in advance

 

[HeroicPandas]

Just imagine a world with you and 195 friends, each of you own a company which sells food

If you (Australia) have a rise in income, then you will have more money to spare, so you would buy more food from your friends (overseas) (so increasing imports)

If your friends (overseas) have a rise in income, then they will have more money to spare, so they would buy more food from you (Australia) thus increasing your (Australian) exports


If you don't understand this, then look at this:
You come to school everyday with $5 as lunch money to buy a chicken burger from the canteen for lunch. Then when you start getting better grades, your parents give you some money ($10 lunch money now) as a reward (increasing your income). Since you know have more money to spend, you buy more food/drinks to satisfy your needs!! The canteen ladies notice that you are buying more for lunch and are happy...

^ (in white) --> You = Australia, canteen = Overseas and vice versa

 

[dunjaaa]

A rise in domestic income increases the level of disposable income. Thus, consumers tend to demand greater imports as their purchasing power increases to greater enhance their standard of living. By the same token, if there is a upswing in the international business cycle (i.e. world growth), there will be an increased level of demand for Australian exports.