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Chapter TwentyNine: The Global Economy and Policy Macroeconomics in a Global Context Figure 29.1: Trade Expressed as a Percentage of Production, World and the United States, 1960-2010 70 Trade as a Percent of GDP 60 World 50 40 United States 30 20 10 0 1960 1970 Source: World Development Indicators, World Bank, 2012. 1980 1990 2000 2010 Figure 29.2: Top Purchasers of Goods from the United States and Suppliers of Goods to the United States, 2012 Buyers of U.S. Exports Mexico Japan Germany South Korea 0 50 100 150 200 250 300 350 Billions of Dollars Sellers of Imports to the U.S. Canada Japan South Korea United Kingdom 0 100 200 300 Billions of Dollars Source: U.S. Census Bureau, Foreign Trade Statistics, Top Trading Partners, 2012. 400 500 The Trade Balance: Completing the Picture Figure 29.3: Leakages and Injections in a Complete Macroeconomic Model Output (Y) Production generates income to households Income (Y) leakages Taxes (T) Savings (S) Consumption (C) Spending (AD) Imports (IM) injections Intended investment (II) Government spending (G) Exports (X) International Finance Figure 29.4: A Foreign Exchange Market Euros per Dollar S E D Quantity of Dollars Euros per Dollar Figure 29.5: A Supply Shift in a Foreign Exchange Market S1 S2 E1 Depreciation of the Dollar E2 D Quantity of Dollars 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 20% 18% 16% Percent of GDP 14% 12% 10% 8% 6% 4% Exports as % of GDP Imports as % of GDP 2% 0% 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: BEA NIPA Tables 4.1 and 1.1.5 Macroeconomics in an Open Economy Expansionary monetary policy Lowers interest rates Reduces capital inflows Investment is encouraged Reduces demand for dollars, leading to depreciation Aggregate demand rises Reduces imports and increases exports Equilibrium GDP rises Per Unit of Domestic Currency Units of Foreign Exchange Figure 29.7: Foreign Exchange Intervention Surplus without intervention Smarket e* Dwith intervention Dmarket Quantity of the Domestic Currency