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chapter six

the united states in the global economy


This chapter introduces the basic principles underlying the global economy; a more advanced discussion of international economics follows in Part Eight. The growth of world trade, and the United States’ role in it, is examined first. The concept of comparative advantage is introduced as the basis for world trade followed by a discussion of foreign currencies and international exchange rates. Restrictive trade practices are examined, and this leads to a discussion of multilateral trade agreements and free-trade regions of the globe. The chapter concludes with an update of how well U.S. firms are competing in an increasingly competitive global economy.


This chapter has been condensed and updated both in terms of the statistics as well as the institutional changes that have occurred in the global economy. The chapter begins with a section that describes international linkages – trade flows, resource flows, information and technology flows, and financial flows. The old Figure 6-1 that illustrated where the component parts for a Boeing 777 were produced has been replaced with a diagram that indicates the flows between the U.S. economy and other national economies. Note that the Last Word, “Buy American: The Global Refrigerator” has been retained. Also omitted is the circular flow model with the foreign sector and the discussion that accompanied the diagram. A summary table has been added to the discussion of comparative advantage. This table will help students understand the relative costs of avocados and soybeans in Mexico and the U.S. The section on Multilateral Trade Agreements and Free-Trade Zones has been reorganized. The discussion on the WTO has been expanded and updated and a subsection on the euro has been added.


After completing this chapter, students should be able to:

1. Identify and give an example of the four...