What is the difference between economic and global external components?
Answers
Answer:
The growth in cross-border economic activities takes five principal forms: (1) international trade; (2) foreign direct investment; (3) capital market flows; (4) migration (movement of labor); and (5) diffusion of technology (Stiglitz, 2003).FebThe United States financial structure and stability is based on trust. For many years, the country has shown a perfect financial record when it comes to debt payments. ... This is an example of how the global economy works, where one country's decisions might have a big impact in the overall worldwide economy.
Explanation:
The international economic system has undergone a deep structural transformation over recent decades, with globalization allowing for a greater exchange of products, services, people and technology. Globalization has been credited with enhancing prosperity and quality of life all over the world thanks to the liberalization of trade, production, and investment. Globalization has also allowed for more foreign direct investment (FDI), which has led to increased availability of services in developing regions. It has boosted domestic production, innovation, and productivity as local markets seek to adapt to the inflow of goods and services.
There are those who have argued that organizations and governments have yet to fully adapt to globalization and the volatility it entails. Many governments and industries have felt the strain of competition, leading to increased protectionist policies and, more recently, the rise of populist political groups seeking to channel the frustration of people excluded from globalization. To better understand this argument, it is crucial to examine the international economic system and its main components to see how globalization impacts and affects them.
Microeconomics vs. Macroeconomics
The field of economics is divided into two main branches. Macroeconomics deals with the overall functioning and activity of the economy and involves the study of aggregate indicators, such as gross domestic product (GDP) and policies surrounding government spending and borrowing, exchange rates, productivity, inflation, and interest rates. Microeconomics looks at specific markets and concepts, such as market equilibrium, perfect competition, and elasticity, and also studies how individuals and firms make decisions to allocate resources.
Microeconomics and macroeconomics constitute the very basis of economic practice, and understanding them can help make sense of how the modern international economic system works and how globalization can have an impact on various economic actors and systems. Depending on the degree of openness of an economy, macroeconomic indicators, such as GDP, can be significantly influenced by changes in global markets. This was demonstrated during the 2008 financial crisis, which impacted a large number of governments and their financial health, directly affecting their growth.
When responding to changes in the global market, countries’ macroeconomic policies often have a corresponding microeconomic impact, affecting individual consumers and small firms who then vary their consumption and investment decisions accordingly. Conversely, the economic performances of certain countries can strongly affect global markets. We can see how significant political, economic and social events in certain nations can create major upheavals in international trade and finance practices, such as the Asian financial crisis in 1997.
International Trade
International trade is the economic exchange of goods and services between countries and is governed by the law of comparative advantage, which states that some markets hold specific advantages that allow them to generate products and services at a lower opportunity cost than others.
In recent decades, innovations in transportation, technology, and communications have allowed for expanded trade at lower costs and faster speeds. Worldwide, the preponderance of trade has grown, as measured by the percentage of international trade that makes up GDP—from 20 percent in 1995 to 30 percent in 2014. Depending on the country, foreign exports can have an important impact on the business cycle by increasing employment and aggregate demand. Some countries benefit tremendously from trade as an important part of their GDP. For example, Singapore is considered one of the world’s most open economies and has the highest trade-to-GDP ratio in the world at 400 percent.
International trade and globalization have varying effects on other economic indicators. When a national economy is strong, industries and businesses feel confident in expanding and spending, which directly impacts the average citizen. However, because local demographics can affect microeconomic indicators, a local economy can still succeed even while national and international economies are facing difficulty.
When and if countries feel as though they are not benefiting from international trade, they can seek to restrict it in order to boost local domestic production. To do so, these nations can impose either tariffs or nontariff barriers—such as quotas—to limit the number of imports entering the country. A complex regulatory environment can make it costlier for products and services to enter a market.