Curiosity 12.3: What Is the Sacrifice Ratio?

15
The Balance of Payments
Economies in which foreign trade plays a prominent role are said to be "open." Macroeconomic analysis of such economies requires that considerable attention be paid to economic forces generated by the interaction of this economy with its major trading partners for convenience usually referred to collectively as "the rest of the world." Individuals voluntarily engage in international trade because doing so allows them to enjoy a higher standard of living. How this comes about is explained in appendix 15.1 at the end of this chapter where the principle of comparative advantage is discussed. The rest of this chapter, and the following three chapters, examine the macroeconomic implications of international economic interactions.
Thirty years ago, U.S. imports and exports were each only about 5 percent of GDP, so the United States was for many years considered a closed economy, the macroeconomic analysis of which could safely ignore forces arising from the international dimension. Now both imports and exports are about 12 percent of GDP, and although the United States is not nearly so strongly affected by international forces as is a small open economy such as Canada (in which imports and exports each comprise about 25 percent of GDP), U.S. worries about the value of the U.S. dollar and a persistent trade deficit are persuasive testimonies to the need to include the role of international forces in our macroeconomic analysis. The advent of the global economy, the rise of multinational corporations, and the growth of speculative trading in international currencies during the past decade underline this need. The most convincing factor from our perspective, however, is that it is currently impossible to analyze media commentary on the U.S. economy without a good understanding of the role played by international forces.
Integrating the international sector into macroeconomic analysis all at once can be overwhelming. To avoid this problem, our discussion of the international sector is divided into four short chapters. This chapter looks at the balance of payments, a summary measure of the foreign exchange market, which unifies analysis of the international sector of the economy.

 



Macroeconomic Essentials. Understanding Economics in the News 2000
Macroeconomic Essentials - 2nd Edition: Understanding Economics in the News
ISBN: 0262611503
EAN: 2147483647
Year: 2004
Pages: 152

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net