What is the relationship between a domestic economy and the international economic system?

Answer 1

This is, of course, not a comprehensive answer, but any business that trades with people or businesses in other nations is part of the international economic system.

For example, Nike is based in Portland, Oregon. It's a publicly traded company, so theoretically it's owned by any number of people in any number of places. These are it's shareholders. It's shoes are designed by designers and engineers in the US mainly or possibly Japan or Canada or something. That shoe is analyzed by marketing people in the US and other offices of the company.

Then the plans are sent to Nike's suppliers. These could be anywhere, but they tend to be in poorer countries (Mexico, Thailand, China) that have good infrastructure (health care, working roads, stable electricity, stuff like that.) This is because it's cheaper to make shoes where you don't have to pay as high wages but you can still move stuff around easily and depend on communications. The suppliers will acquire the materials they need. For a shoe, this includes rubber, leather, metal, cloth, plastic, etc. Leather can come from anywhere with cows. This would likely be Brazil, Canada or the US. Rubber comes primarily from Indonesia and South East Asia. Plastic is made of oil, which comes from Iran, Nigeria, Saudi Arabia, Venezuela, etc. It can be refined and turned into plastic in a lot of places. Let's say this oil comes from Brunei, in South East Asia, and is refined in the Philippines. Let's say the rubber comes from Indonesia. The Leather comes from Australia. And so on. All this is taken to a factory, let's say in China. Workers make it all into shoes. These are shipped out to be sold in South Korea and Italy and South Africa and Argentina and South Dakota and a million other places.

The part of the price of the shoe that isn't spent on materials or taken out by the store goes to Nike. This is Nike's profits. If Nike keeps making profits and increasingly high profits, shareholders will keep buying "stock" in Nike. Nike has to keep making profits, so it has to keep finding the cheapest way to make shoes and the cheapest way to make the most people buy the most shoes at the highest prices. That's the way it looks for Nike.

If you go backward, to the stores that sell the shoes, then you see that each of these stores is a link between a huge company and the local economy. People in the town or county buy the shoes and other people work in the stores. The suppliers in China link Nike to people in China and South East Asia. Chinese workers are paid (however small their wages are) and spend their money to buy food, clothes and stuff like that. This money goes into the local economy of Zhangwen or whatever. Then if we go back to Rubber workers in Indonesia, they are injecting shoe money into their local economy.

You can see that this shoe company involves people in many countries, but that it is all part of a huge complicated system. The economy now involves almost everyone on earth, so it is incredibly hard to predict how something will happen if 6,400,000,000 are all participating in the process. That is why economists so often disagree or end up wrong.

Making things and selling them is pretty straight forward compared to resources (like oil), currencies (like when people say the "dollar is weaker"), or finances (banks that loan money across the world and stuff like that). When you get into those sort of things, you're often dealing with what a lot of people think in New York or London, instead of actual events.

For example, if Bush says something about a war with Iran, the price of oil can go up. Not because oil is harder to get, but because a lot of Commodities Traders on Wall Street (Commodities are things like oil or gold that people can buy or sell) think oil will get harder to get. They might be right. If the US invaded Iran, it would make it harder to get oil, because a lot of pipe lines and pumps would close. Even if the Traders are wrong, though, the price of oil will go up. This is because when someone makes an investment, they want to buy something cheap and sell it later for more money. If something, like oil, looks like it will get a lot more expensive, Traders will buy it. But if a lot of Traders all try to buy oil, all of a sudden the people who have oil will set the price higher. That's because when everyone wants it, they probably want it enough to pay a lot more. And that keeps happening until oil it is pretty expensive. Since gas is made of oil, when Traders think oil might be harder to get in the future, it does become harder for you to pay to fill your car. It makes a really weird kind of sense if you think about it, but no one is trying to make it fair. If someone in charge Iran bothers the US, or if our government bothers theirs, we have to pay more for gas.

So there you go, man, that's how our economy gets changed by the world economy. This is kind of long and has a lot of holes in it, but it is a start. I recommend listening to the radio show Marketplace on NPR in the US (90.9 FM in Boston) on Weekdays at 6:30.

Answer 2

The relationship is that the domestic makes up a percentage of the international system. The US economy is considered domestic to us homesters but on an international stage it joins other nations to make up the international economy.

Answer 3

Depends on how open the domestic economy is. If it is fully open, then the interest rate and currency exchange rate are both set entirely by the ebb and flow of the international system. If it is only partially open (ie, access to financial markets is restricted, immigration is limited, tariffs are in place), then the international economic system only plays a limited role.

Answer 4

The dollar is directly tied to the world economy because of trade between countries. We need for them to have strong economies so they will do lots of business with US companies, which will boost the national, or domestic economy.

If the US companies are doing better both domestically and internationally, the stock market rate is higher. This means our dollar is stronger because they are buying more from our country's companies.

Answer 5

Best in what way? - Nicest People? - Having lived in South America for over 50 years and talked to hundreds of commercial travellers who are the people that meet up with all classes, I would say the consensus is that Chileans, Ecuadorians, and Paraguay's are over-whelmingly considered decent people. The people in Argentinian provinces far away from BA and the Boca area and the Bolivians from the Santa Cruz area are generally recommended. To comment on the rest could be politically incorrect.

Answer 6

Fundamentally, you borrow money from the Chinese who now produce everything and when interest rates start going up to 16% they win.