There is no such thing as a purely domestic policy in the global economy.
Helping Mexico was a way of helping the United States.
The realization of American University helped convince President Clinton to bail out Mexico.
President helped control disruptions in currency and values after making that statement.
Clinton received a crash course in macroeconomics.
The Mexican economy took a nosedive in 1995 after the World Trade Center was destroyed by terrorists.
The value of the Mexican nomic shock disrupted not only U.S. markets but global ones.
The World View relates that nations around quickly realized that the economic shock to the U.S. economy wasn't just the world's worry.
One of America's largest exports is Mexico.
If the Mexican economy goes into a recession, businesses will stop spending, consumers will stop buying and businesses will stop exporting.
The U.S. economy would suffer.
This chapter looks at global interdependence.
Also linked is par.
Mexicans rushed to convert their currency into U.S. dollars when the peso collapsed.
U.S. bank reserves increased as assets were moved into American banks.
The 1993 North American Free Trade Agreement increased interdependence between Mexico and the United States.
The economic impact goes beyond the U.S. border.
European Baudouin Velge, chief economist of the Belgian Federation companies says the uncertainty over what happens next will weigh on an already weak European economy.
The U.S. has been trying to avoid Europe's exports for years.
Economists estimate a percentage sion this year, based on the possibility of a U.S. economy point drop.
The hopes are gone.
Businesses delay big, potential merger partners put their talks on hold, companies hold off on expansion plans, and consumers save rather than buy.
"Wall Street has a couple of million marks right now," said Diether Klingelnberg, JOURNAL.
DOW JONES & COMPANY, INC.'s permission was granted to a company in Germany that makes machines for the airline industry.
People format textbooks through the Copyright Clearance Center.
Goods, labor, and money are interdependent.
The most visible reminders of America's global interdependence are Japanese cars.
Chapter 35 explains the reasons for international trade.
Does trade affect our efforts to attain full employment, price stability, and eco imports?
The basic model can be expanded easily.
The equality no longer holds when some goods are sold as exports and others as imports.
Spending is involved in international trade.
Imported goods may be desired, but their availability complicates policy.
Aggregate spending increases are supposed to boost domestic output.
The link between spending and output is weakened with imports.
The initial impact on domestic demand is reduced.
The size of the multiplier is reduced.
There are reduced effects.
The process starts with a $10 billion increase in government spending.
If an econ posable income is not spent on omy with no income taxes, this injection adds $10 billion to consumer income.
The sequence of events that follow can be seen in the panels.
Consumers only have two uses for their income in the closed economy: spend it on domestic consumption or save it.
Consumers save $1 billion and spend $9 billion on domestic consumption.
Consumers have more choices in an open economy.
We assume that the marginal propensity to import is 0.10.
Consumers use their additional $10 billion of income to spend $8 billion on domestic consumption.
$1 billion was spent on imports.
Domestic consumption is only spent $8 billion in the open economy.
Every round of the circular flow, there is import leakage.
The multipliers are reduced from 10 to 5.
Spending impact of changes in con 1 is reduced by import leakage.
Saving reduces the size of the mul 3.
Consumer saving is the only form of leakage.
The entire leakage fraction is the marginal propensity to save.
The closed-economy multiplier is equal to 10 in the table.
We have to contend with additional leakage once we open the economy to trade.
The consequences of different multipliers are striking.
Panel D shows that there is an increase in consumption in the closed economy.
The open economy does not generate as much additional consumption.
The consequences for aggregate demand are summarized in the last panel.
The $10 billion spent by the government is the initial injection of spending.
In the closed economy, this injection leads to a $100 billion increase in aggregate demand.
Figure 18.1 shows how imports limit the shift of aggregate demand.
The small shift in the open economy results in a smaller increase in GDP.
The result is less of an increase in domestic output.
The import leakage can act as an automatic stabilizer.
The industries with a high marginal propensity to import were the most affected by the slowdown in U.S. aggregate demand.
The pain caused by the U.S. slowdown was absorbed by foreign producers.
Without that safety valve, the U.S. economy would have suffered larger effects.
The amount of demand created by a fiscalStimulus depends on the marginal propensity to import
That's because the slump is con, if you want a vivid illustration of America's role in the global centrated in business-sector cuts in capital spending and slowdown, consider that the U.S. buys up nearly one-fourth of inventories, mainly for tech-equipment.
The growth of the U.S. dollar outlays for capital goods goes to imports.
The amount of tech goods entering the U.S. has gone from 17 per gear to 16 percent.
Last autumn the pace was cent annual, now it's 5 percent.
Singapore is in recession because of America's gain.
Semiconductor and other tech com shipments to the U.S. have been a drag on the ailing manufacturing sector.
The dropoff in imports is acting like a shock absorber, because foreign producers are not feeling the effects of the U.S. economy.
In an economic downturn, imports act as an automatic stabilizer by absorbing some lost sales and adding to aggregate supply as domestic capacity is approached.
International trade is a two-way street.
Changes in exports are considered to be autonomously since export sales are mostly sold to foreign buyers.
An increase in export demand would set off a chain of effects.
Small changes in exports generate larger shifts of demand.
A reduction in American exports to Asia could have led to large job losses in the U.S. economy during the 1997-98 Asian crisis.
U.S. exporters lost sales when Japan fell into another recession.
Strong economic growth in China, India, and other nations increases demand for U.S. exports, shifting the AD curve rightward.
The net impact of international trade on the domestic economy comes down to a question of balance.
The impact of trade on domestic AD depends on the difference between exports and imports.
If both exports and imports were equal, there would be no spillover from the rest of the world.
The short-run macro stability problem arises because different people make different investment and saving decisions.
International trade is affected by the same problem.
Foreign governments make decisions about how much to spend on American exports.
American consumers, investors, and government agencies spend more on imports than the value of exports.
Positive seems unlikely that exports will ever equal imports because these sets of shoppers are so isolated from one another.
We have to expect a trade surplus.
There are certain terms for trade imbalances.
In 2006 the United States had a trade deficit.
U.S. consumers, investors, and government agencies were buying net exports.
There is a trade deficit.
It's like getting a free lunch.
A trade deficit is an important safety valve for rising inflation.
In 2006 the U.S. economy was growing nicely and there were signs of demand-pull inflation.
Imported inputs and products were readily available to keep inflation in check.
Sometimes trade deficits aren't beneficial.
There is a trade deficit.
Attempts to attain full employment may be hampered by that leakage.
Crowding out net exports.
One reason people worry about budget deficits is that the data in "Balance of Payments" may show government spending more than private investment and consumption.
The increase in aggregate demand can be satisfied by increased imports.
Consumers will spend a fraction of their income on imports.
The trade gap will be widened by these added imports.
Similar problems can be created by a trade surplus.
Positive net exports may fuel inflationary pressures.
The policy objective is to restrain aggregate spending if the economy is overheating.
Fiscal and monetary constraints don't affect the tastes of foreign consumers.
Domestic monetary and fiscal restraint will have to be harder to offset continuing export demand.
The trade surplus may grow in response to restrictive policies.
Domestic consumers squeezed by monetary and fiscal restraint will reduce purchases of imported goods.
If fiscal and monetary restraint reduces domestic inflation, foreigners may increase their export purchases.
We wouldn't have a goal conflict and could achieve our domestic policy goals if we ignored trade imbalances.
Our trading partners may not be content with our trade imbalances.
The United States has a trade deficit.
It's implications are potentially worrisome.
The rest of the world may not be happy about shipping us more output than they get in return.
Their exports would finance a higher standard of living for us.
Their living standards would be less than what was made possible.
Tension could be caused by these differences.
Foreign nations might be concerned about inflationary pressures of their own and so resist additional demand for their exports.
The idea of macro equilibrium gets more complicated when we use global views.
Foreign nations may respond with their own trade initiatives if our trade balance upsets other economies.
These responses would affect America's trade flows and domestic outcomes.
To find the optimal balance of aggregate demand and aggregate supply is our basic objective in both an open and closed economy.
AS1 doubled again in 1979.
The price of oil went up in 2006
The result is more accurate.
The greatest threat to the product and factor markets is on the demand side.
Consumers have to spend more because of the price increases.
Consumers got more of their income from foreign oil imports.
Spending on domestic output went up in 2006 because of less income.
Domestic output and spending will be affected by abrupt changes in the price of imported goods.
Domestic unemployment can be worsened by external shocks.
Aggregate demand and aggregate supply are affected by imports and exports.
Domestic macro policy may be helped or hindered by trade.
International trade repercussions need to be taken into account when making macro policy decisions.
International trade adds to the decision making process.
Our interactions with the rest of the world are complicated by international money flows.
Money can be easily moved across international borders.
Money is moved across borders to get bigger profits, higher interest rates, or more security.
International money flows are similar to trade in goods and services.
In 2006 foreign capital flowed into the United States at a rate of $2 trillion.
International investors were attracted to the Treasury bonds for two reasons.
Real interest rates in the U.S. economy made them more attractive than foreign bonds.
In early 2006 P O L I C Y C O N S T R A I N T S looked attractive for many reasons.
The capital inflow was created by people and institutions moving funds into the U.S. markets.
Capital inflow was increased by the profits of U.S. corporations operating abroad.
When U.S. firms build plants abroad, they expect to make money.
Multinational firms in the U.S. have accumulated a large share of world markets, giving them a regular inflow of international profits.
McDonald's has more than 30,000 restaurants in over 100 countries.
America's capital inflow is boosted by profits from its foreign outlets.