658PART ELEVENTHE MACROECONOMICS OF OPEN ECONOMIEScountry to specialize in producing those goods and services in which it has a com-parative advantage.So far our development of macroeconomics has largely ignored the economy’sinteraction with other economies around the world. For most questions in macro-economics, international issues are peripheral. For instance, when we discussedthe natural rate of unemployment in Chapter 26 and the causes of inflation inChapter 28, the effects of international trade could safely be ignored. Indeed, tokeep their analysis simple, macroeconomists often assume a closed economy—aneconomy that does not interact with other economies.Yet some new macroeconomic issues arise in an open economy—an economythat interacts freely with other economies around the world. This chapter and thenext one, therefore, provide an introduction to open-economy macroeconomics.We begin in this chapter by discussing the key macroeconomic variables that de-scribe an open economy’s interactions in world markets. You may have noticed
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