Principles of Economics- Mankiw (5th) 637

Principles of Economics- Mankiw (5th) 637 - balanced trade...

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CHAPTER 29 OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS 659 CASE STUDY THE INCREASING OPENNESS OF THE U.S. ECONOMY Perhaps the most dramatic change in the U.S. economy over the past five decades has been the increasing importance of international trade and finance. This change is illustrated in Figure 29-1, which shows the total value of goods and services exported to other countries and imported from other countries ex- pressed as a percentage of gross domestic product. In the 1950s exports of goods and services averaged less than 5 percent of GDP. Today they are more than twice that level and still rising. Imports of goods and services have risen by a similar amount. exports are negative, exports are less than imports, indicating that the country sells fewer goods and services abroad than it buys from other countries. In this case, the country is said to run a trade deficit. If net exports are zero, its exports and im- ports are exactly equal, and the country is said to have
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Unformatted text preview: balanced trade. In the next chapter we develop a theory that explains an economy’s trade bal-ance, but even at this early stage it is easy to think of many factors that might in-fluence a country’s exports, imports, and net exports. Those factors include the following: ± The tastes of consumers for domestic and foreign goods ± The prices of goods at home and abroad ± The exchange rates at which people can use domestic currency to buy foreign currencies ± The incomes of consumers at home and abroad ± The cost of transporting goods from country to country ± The policies of the government toward international trade As these variables change over time, so does the amount of international trade. “But we’re not just talking about buying a car—we’re talking about confronting this country’s trade deficit with Japan.” trade deficit an excess of imports over exports balanced trade a situation in which exports equal imports...
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