(BQ) Part 2 book "International economics - Theory & policy" has contents: National income accounting and the balance of payments; money, interest rates, and exchange rates; price levels and the exchange rate in the long run; output and the exchange rate in the short run; output and the exchange rate in the short run; output and the exchange rate in the short run,.and other contents. | 13 chapter part three National Income Accounting and the Balance of Payments 293 Exchange Rates and Open-Economy Macroeconomics B etween 2004 and 2007, the world economy boomed, its total real product growing at an annual average rate of about 5 percent per year. The growth rate of world production slowed to around 3 percent per year in 2008, before dropping to minus percent in 2009—a reduction in world output unprecedented in the period since World War II. These aggregate patterns mask sharp differences among individual countries. Some, such as China, slowed relatively modestly in 2009, while the output of other countries, such as the United States, contracted sharply. Can economic analysis help us to understand the behavior of the global economy and the reasons why individual countries’ fortunes often differ? Previous chapters have been concerned primarily with the problem of making the best use of the world’s scarce productive resources at a single point in time. The branch of economics called microeconomics studies this problem from the perspective of individual firms and consumers. Microeconomics works “from the bottom up” to show how individual economic actors, by pursuing their own interests, collectively determine how resources are used. In our study of international microeconomics, we have learned how individual production and consumption decisions produce patterns of international trade and specialization. We have also seen that while free trade usually encourages efficient resource use, government intervention or market failures can cause waste even when all factors of production are fully employed. With this chapter we shift our focus and ask: How can economic policy ensure that factors of production are fully employed? And what determines how an economy’s capacity to produce goods and services changes over time? To answer these questions, we must understand macroeconomics, the branch of economics that studies how economies’ overall levels of .
