Page 639 - The Principle of Economics

OPEN-ECONOMY MACROECONOMICS: BASIC CONCEPTS
When you decide to buy a car, you may compare the latest models offered by Ford and Toyota. When you take your next vacation, you may consider spending it on a beach in Florida or in Mexico. When you start saving for your retirement, you may choose between a mutual fund that buys stock in U.S. companies and one that buys stock in foreign companies. In all of these cases, you are participating not just in the U.S. economy but in economies around the world.
There are clear benefits to being open to international trade: Trade allows peo- ple to produce what they produce best and to consume the great variety of goods and services produced around the world. Indeed, one of the Ten Principles of Eco- nomics highlighted in Chapter 1 is that trade can make everyone better off. Chap- ters 3 and 9 examined the gains from trade more fully. We learned that international trade can raise living standards in all countries by allowing each
657
IN THIS CHAPTER YOU WILL . . .
Learn how net exports measure the international flow of goods and services
Learn how net foreign investment measures the international flow of capital
Consider why net exports must always equal net foreign investment
See how saving, domestic investment, and net foreign investment are related
Learn the meaning of the nominal exchange rate and the real exchange rate
Examine purchasing- power parity as
a theory of how exchange rates are determined