This chapter identified the concepts and laws that serve as the framework within which the discipline of international business functions.
The first portion of the chapter dealt with the conceptual framework that economists use to explain the way an economy works. The economy was defined as a productive system that converts natural and human resources into consumable products. These products and services are exchanged via the market system, which acts as a clearinghouse for the goods and services demanded and supplied.
The economist's modeling process begins with the idea of an economy that is completely self-sufficient—that is, its industrial systems produce whatever quantities and qualities of goods and services its citizens demand, and the citizens in turn consume the entire production. In such a model the economy's total output equals the total of the expenditures of its citizens, businesses, and government (Y = C + I + G).
In reality, however, most economies today are open, as countries exchange goods and services with the rest of the world. Some of their production goes abroad, and some of their consumption is satisfied with products and services from abroad. Thus a fourth factor—imports and exports—must be added to the three components of the original model: GNP = C + I + G + N, where N is imports minus exports.
The second part of the chapter provided an overview of the quantitative and qualitative dimensions of the global economy, with an emphasis on population, income, and resources.
Finally, the last part of the chapter described the reports of the International Monetary Fund (IMF) on developments in international finance. In addition to current statistics, World Economic Outlook includes projections and recommendations.
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