Introduction

This book attempts to provide a non-mathematical introduction to the macroeconomic analysis of both the open economy and the world economy. Such analysis is appropriate for a number of reasons. First, all economies are, at least to some extent, open; they have trading and financial links with other economies. Second, what holds for a closed economy may not hold for an open one. Dropping the closed economy assumption from simple macroeconomic models is a strategic step which may even reverse the policy conclusions reached. Third, while it is important to see how the operation of an open economy differs from that of a closed one, it is also important to examine the operation of the world economy — or a substantial part of it — as a whole. Many macroeconomic problems are shared across countries and it is therefore relevant to ask whether these problems and their potential solutions should not be dealt with at a more aggregated level than that of individual countries. Furthermore, does it follow that what is right for an individual economy in isolation is right for the world economy?