Week 12/13

Principles of Macroeconomics (with Xtra!)

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Unformatted text preview: file:///C|/Documents%20and%20Settings/Linda%20Grauer/My%20Docume...oronto/ECM%20B06/Handouts/Week11/dec99(Mundell-FixedERates).html Fortune issue: December 20, 1999 First Principles GLOBAL ECONOMICS, PART II A Theory for an Open World By N. Gregory Mankiw To say we live in a global economy is a cliché as trite as they come. Today everyone understands that a nation has to keep an eye on its neighbors when setting economic policy. But this wasn't always so obvious. In the 1960s, U.S. imports were a mere 4% of GDP, compared with 14% now. Mainstream theories of monetary and fiscal policy mostly ignored international issues, assuming in effect that each nation was alone in the world. Columbia University economist Robert Mundell, a Canadian, knew otherwise. The analysis he developed in the 1960s won him this year's Nobel Prize in economics. More important, it remains the starting point for explaining how policy works in a global economy. In the 1930s economist John Maynard Keynes said depressions and recessions resulted when people weren't spending enough to keep everyone employed. The solution, he argued, was to goose up spending weren't spending enough to keep everyone employed....
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