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How do changes in a nation’s trade flows affect its GDP and employment? We first analyze this question in the context of our short-run model of output determination, the multiplier model. The multiplier model shows how, in the short run when there are unemployed resources, changes in trade will affect aggregate demand, output, and employment. […]

Net Exports: Concepts and Trends Open-economy macroeconomics involves the interactions of trade, output, spending, employment,and price levels among different nations.Foreign trade involves imports and exports. A country’s imports are its purchases of goods and services from other nations. Although the United States produces most of what it consumes, it nonetheless has a large quantity of […]

Designing an export strategy involves the following steps: Assess the company’s export potential by examining its opportunities and resources. It would not be smart to commit to exporting if the company does not have the production capacity to deliver the product. Obtain expert counseling on exporting.   Most governments provide assistance for their domestic companies, although […]

Foreign investment involves ownership of foreign property in exchange for financial return. Foreign investment takes two forms: direct and portfolio. Direct Investment. A direct investment is one that gives the investor a controlling interest in a foreign company. Such a direct investment also is called a foreign direct investment (FDI). Control need not be a […]

Now that we have seen the way a competitive economy allocates resources, we can understand why a competitive economy is efficient. A general-equilibrium market system will display allocative efficiency when there is perfect competition, with well-informed producers and consumers and no external effects. In such a system, each good’s price is equal to its marginal […]