KW_Macro_Ch_06_Sec_05_The_Open_Economy

KW_Macro_Ch_06_Sec_05_The_Open_Economy - chapter 6 >...

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Macroeconomics: The Big Picture Section 5: The Open Economy chapter 6 In 1954, when the original McDonald’s was selling hamburgers for $0.15, the United States was very close to being a closed economy —an economy that does not trade goods, services, or assets with other countries. It wasn’t literally closed, of course: even then the United States imported its coffee and bananas, and some U.S. compa- nies had already invested abroad. But trade in goods, services, and assets was suffi- ciently small compared with the size of the U.S. economy that macroeconomic analysis and policy could more or less ignore the effects of cross-border transactions. That is no longer the case. The United States is now an open economy —an econ- omy that does a lot of trade in goods, services, and assets with other countries. And the economies of most other countries are even more open than that of the United States. For example, while the U.S. sells approximately 12% of what it produces to other countries, Canada sells almost 50% of what it produces to other countries (mainly, though not entirely, to the United States). As we discussed in Chapter 2, economies have become open over time be- cause international trade is mutually beneficial: countries are able to specialize in A closed economy is an economy that does not trade goods, services, or assets with other countries. An
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This note was uploaded on 04/10/2008 for the course ECONOMICS 103 taught by Professor Sheflin during the Spring '08 term at Rutgers.

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KW_Macro_Ch_06_Sec_05_The_Open_Economy - chapter 6 >...

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