Key Concepts and Summary
Key Terms
economy of a country that has demonstrated the ability to catch up to the leaders by investing in both physical and the economies of Taiwan, Singapore, Hong Kong, and South Korea, which maintained high growth rates and rapid export-led industrialization between the early 1960s and 1990 allowing them to converge with the technological leaders in high- countries a series of studies that show, statistically, that 70% of the differences in per person across the world is explained by differences in (savings/investment) nation with a per capita of $12,475 or more; typically has high levels of human and a nation that has a per capita income of less than $1,025; a third of the world’s population middle-income country a nation with per capita income between $1,025 and $12, 475 and that has shown some ability, even if not always sustained, to catch up to the technology leaders in high-income countries
Key Concepts and Summary
19.1 The Diversity of Countries and Economies across the World
Macroeconomic policy goals for most countries strive toward low levels of unemployment and , as well as stable trade balances. Economists analyze countries based on their GDP per person and ranked as low-, middle-, and high- countries. Low- are those earning less than $1,025 (less than 1%) of global . They currently have 18.5% of the world population. Middle- countries are those with per capital of $1,025–$12,475 (31.1% of global ). They have 69.5% of world population. High- countries are those with per capita greater than $12,475 (68.3% of global ). They have 12% of the world’s population. Regional comparisons tend to be inaccurate because even countries within those regions tend to differ from each other.
19.2 Improving Countries’ Standards of Living
The fundamentals of growth are the same in every country: improvements in , , and interacting in a -oriented economy. Countries that are high- tend to focus on developing and using new . Countries that are middle- focus on increasing and becoming more connected to and global markets. They have charted unconventional paths by relying more on state-led support rather than relying solely on markets. Low-, economically-challenged countries have many health and human development needs, but they are also challenged by the lack of investment and foreign aid to develop like roads. There are some bright spots when it comes to financial development and mobile communications, which suggest that low- countries can become technology leaders in their own right, but it is too early to claim victory. These countries must do more to connect to the rest of the global economy and find the technologies that work best for them.
19.3 Causes of Unemployment around the World
We can address by expansionary fiscal and . The can be harder to solve, because it involves thinking carefully about the tradeoffs involved in laws that affect employment and hiring. Unemployment is understood differently in high- countries compared to low- and middle- countries. People in these countries are not “unemployed” in the sense that we use the term in the United States and Europe, but neither are they employed in a regular wage-paying job. While some may have regular wage-paying jobs, others are part of a economy.
19.4 Causes of Inflation in Various Countries and Regions
Most high- economies have learned that their central banks can control in the medium and the long term. In addition, they have learned that has no long-term benefits but potentially substantial long-term costs if it distracts businesses from focusing on real productivity gains. However, smaller economies around the world may face more volatile because their smaller economies can be unsettled by international movements of capital and goods.
19.5 Balance of Trade Concerns
There are many legitimate concerns over possible negative consequences of free trade. Perhaps the single strongest response to these concerns is that there are good ways to address them without restricting trade and thus losing its benefits. There are two major issues involving trade imbalances. One is what will happen with the large U.S. trade deficits, and whether they will come down gradually or with a rush. The other is whether smaller countries around the world should take some steps to limit flows of international capital, in the hope that they will not be quite so susceptible to economic whiplash from international flowing in and out of their economies.
Self-Check Questions
1 . Using the data in , rank the seven regions of the world according to GDP and then according to . Population (in GDP Per GDP = Population × Per Capita GDP (in millions) Capita millions) East Asia and Pacific 2,006 $5,536 $10,450,032 South Asia 1,671 $1,482 $2,288,812 Sub-Saharan Africa 936.1 $1,657 $1,287,650 Latin America and Caribbean 588 $9,536 $5,339,390 Middle East and North Africa 345.4 $3,456 $1,541,900 Europe and Central Asia 272.2 $7,118 $1,862,384 TABLE 19.3GDP and Population of Seven Regions of the World 2 . What are the drawbacks to analyzing the global economy on a regional basis? 3 . Create a table that identifies the macroeconomic policies for a , a , and a . 4 . Use the data in the text to contrast the policy prescriptions of the high-, middle-, and low- countries. 5 . What are the different policy tools for dealing with ? 6 . Explain how the may be higher in low- countries. 7 . How does indexing wage contracts to help workers? 8 . Use the AD/AS to show how increases in government spending can lead to more inflation. 9 . Show, using the AD/AS model, how governments can use monetary policy to decrease the price level. 10 . What do international flows of capital have to do with trade imbalances?
Text from Principles of Macroeconomics 3e, OpenStax, licensed CC BY-NC-SA 4.0. Access for free at openstax.org.
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