Net exports normally decrease with the effect when aggregate output decline. When a concretionary fiscal policy is implemented net exports will go up . When government maintain the supply of money into the economy then the money will have its value in the economy. Foreigners when they import then they pay a lot of money. On the other hand the domestic expenditure when they export things then they don't have to pay a lot money because of the money value.
Value add tax in uk was considered reasonable to other EU countries when it was 17.5% where other European countries like Denmark or Sweden which pay vat about 25%.
Vat increase had great impact on every one as each of the uk households will pay £1.16 pee day. VAT also has great impact on consumers as well as on the retail sector because a slowdown in this sector can result in decline of the economy growth. But on the other hand the government can have a benefit from the VAT rise to generate extra £11.4 billion for the treasury.VAT has direct impact on the cotton import and textile industry as because the petroleum price will go up and VAT will be paid on each and every item. This is being used for the production of the clothing.
It had affect the customer who spend money on clothing but because of the vat price have gone up on every day goods they won't be able to spend more on the cotton made items so that why the demand for the cotton good will fall. Rise in the vat will lead to the reduction in demand for the clothing causing an upward shift in the demand schedule. Supply is created at p1 leading to pressure on the price d1 and d2 are indication of demand and supply is s1 as shown in the diagram below.