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Open economy - Term Paper Example

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An open economy is one that interacts freely with other economies around the world, a theoretically simple explanation that belies its actual complexities. Macroeconomics, the theoretical basis of the open market, involves the selling of goods and services produced in one…
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Extract of sample "Open economy"

Download file to see previous pages The primary advantage for consumers living in a country with an open economy is obvious in that they have a much larger variety of goods to choose from. The caveat here must be “if they can afford to buy them.” Additionally, these consumers may also invest financially outside of the country. Regarding country as a political entity, it is not required to equal its output of goods and services and can, if it wishes, spend more money than it itself produces within its economy by borrowing from abroad, or it can spend less than it produces and lend the difference to other countries.
A primary example of this previous statement is the United States as the former country mentioned, and China as the latter, a situation widely discussed and criticized by many as detrimental to the future economic and political stability of our nation as well as its security. ChinaDaily.com quotes President Obama. “The long-term deficit and debt that we have accumulated (with China) is unsustainable. We cant keep on just borrowing from China... We have to pay interest on that debt and that means that were mortgaging our childrens future with more and more debt" (para. 2-3). At over $700 billion in U.S. government securities, and despite its own mixed participation in the open economy which discourages foreign investment, China is the single largest holder of U.S. debt. With a budget deficit of over 1.8 trillion, the US continues to import Chinese goods and allow it access to investment and debt purchase at a disproportionately alarming rate. With the world economy shrinking, concerns are many that China will either stop buying our debt or call in markers we are unable to pay.
Much of what is touted about the benefits of open economy to poorer nations is largely theoretical. Chidambaran in India in Transition presents a positive view of the ...Download file to see next pagesRead More
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