International Economy

Worldwide

Economic shocks occur from out of the blue, but how does the global economy handle these shocks before falling into a recession? Based on knowledge and research, it is proposed that the economies move away from a closed economy to an open one; exchange rates are terminated and a single global currency is imposed; and more advanced countries assist with the increase of capital inflow to less developed countries.

In Capital flows and trade flows (2008), it is noted that “a country that exports more than it imports, which gives the country a higher exchange rate of their currency” is known as trade surplus, and a country that imports more than it exports, which causes a lower exchange rate since importers must convert their currency to purchase more of the foreign one is called trade deficit (Para. 8). With that being stated, China has a huge trade surplus, and the United States has a trade deficit. When the value of China’s Yuan decreased, it caused the market to become imbalanced. Because countries can trade with China at a cheaper price, China has become a powerful exporting country. Actually, Worsnip (2008) states that the U.S. has the biggest deficit and China, Japan, and major oil producers have the highest surpluses.

In the words of Claudia Blum from Colombia, she says, “Trade is the driving force for economic growth and development” (International Community, 2010, Para. 54). She also notes that international trading systems must become conversant with the needs of developing countries. With those thoughts in mind, export diversification is a constructive buy and sell proposal since trade freedom is vital to growth when accompanied by competitive exchange rates.

By trading with other countries, goods and services of the country increases and the result is economic growth. Therefore, one recommendation is to move away from a closed economy to an open economy. Schiller (2008) says, “The gain from trade is increased world output and a higher...