No nation.is an island unto itself. All nations in the world economy and are linked together through trade and finance. The trade linkages of imports and exports -of goods and services are seen when ·the United States imports can from Japan or exports. computers to Mexico. Financial linkages come when the United States lends funds to Mexico to stabilize the Mexican peso or when British pension funds diversify their portfolios by investing in the booming U.S. stock market.
The international economy is an intricate web of trading and financial connections among countries. When the international economic system runs smoothly, it contributes to rapid economic growth when trading systems break down, production and incomes suffer throughout the world. Countries therefore consider the impacts of trade policies and international financial policies on their domestic objectives of output, employment, and price stability.
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