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Chapter Twenty-
Nine:
The Global Economy and
Policy
Macroeconomics in a Global Context
United States
World
Figure 29.1: Trade Expressed as a Percentage of Production, World and the United States, 1960-2010
Source: World Development Indicators, World Bank, 2012.
Figure 29.2: Top Purchasers of Goods from the United States and Suppliers of Goods to the United States, 2012
Source: U.S. Census Bureau, Foreign Trade Statistics, Top Trading Partners, 2012.
The Trade Balance: Completing the Picture
Output (Y) Income (Y)
Spending (AD)
Exports (X)
Government spending (G)
Intended investment (II)
Imports (IM)
Consumption (C)
Savings (S)
Taxes (T)
Production generates income to
householdsleakages
injections
Figure 29.3: Leakages and Injections in a Complete Macroeconomic Model
International Finance
Quantity of Dollars
Eu
ros
per
Do
llar E
D
S
Figure 29.4: A Foreign Exchange Market
Quantity of Dollars
Eu
ros
per
Do
llar
D
S1
E1
S2
Depreciation of the Dollar
E2
Figure 29.5: A Supply Shift in a Foreign Exchange Market
Table 29.1: U.S. Balance of Payments Account (2011, billions of dollars)
Source: U.S. Bureau of Economic Analysis, U.S. International Transactions Accounts Data, table 1, with rearrangements and simplifications by authors.*Also includes the net value of financial derivatives (financial instruments whose values are linkedto an underlying asset, interest rate, or index, such as futures or options).
Figure 29.6: U.S. Imports and Exports of Goods and Services, 1960-2012
Source: BEA NIPA Tables 4.1 and 1.1.5
Macroeconomics in an Open Economy
Expansionary monetary policy
Lowers interest rates
Investment is encouraged
Aggregate demand rises
Equilibrium GDP rises
Reduces capital inflows
Reduces demand for dollars, leading to depreciation
Reduces imports and increases exports
Quantity of the Domestic Currency
Un
its
of
Fo
reig
n E
xch
ang
e
Per
Un
it o
f D
om
esti
c C
urr
ency
Dmarket
e*
Smarket
Dwith intervention
Surplus without intervention
Figure 29.7: Foreign Exchange Intervention