AN ECONOMIST IS SITTING IN THE OVAL OFFICE OF THE WHITE HOUSE, ACROSS THE DESK FROM THE PRRESIDENT OF THE UNITED STATES.THE PRESIDENT ASKS, ''HOWDOES THE UNEMPLOYMENT RATE LOOK FOR THE NEXT...
AN ECONOMIST IS SITTING IN THE OVAL OFFICE OF THE WHITE HOUSE, ACROSS THE DESK FROM THE PRRESIDENT OF THE UNITED STATES.THE PRESIDENT ASKS, ''HOW
DOES THE UNEMPLOYMENT RATE LOOK FOR THE NEXT QUARTER?" THE ECONOMIST ANSWERS ,"ITS NOT GOOD.I DONT THINK REAL GDP IS GOING TO BE AS HIGH AS WE INITALLY THOUGHT.THE PROBLEM SEEMS TO BE FOREIGN INCOME-ITS JUST NOT GROWING AT THE RATE WE THOUGHT IT WAS GOING TO GROW." HOW CAN FOREIGN INCOME AFFECT THE U.S. UNEMPLOYMENT?
When consumers see a decline in income, they consume fewer goods and services. This hurts businesses, which may be forced to make reductions in their workforces, which can lead to even less money in the hands of consumers. This is how economic downturns can begin, and though we usually think of them in domestic terms, these same principles apply to the global economy. If consumers in a foreign economy that typically purchase goods and services made in the United States suddenly experience a decline in income, they will demand fewer goods and services from American producers. The United States' main export is machinery, especially computerized machinery. If people have lower incomes, they will purchase fewer of these machines, and the manufacturers that produce these machines will have to adjust production, which usually means that workers will be laid off (since fewer workers are needed to produce the machinery). This, as mentioned above, has a ripple effect through the economy that can lead to higher unemployment rates. The interconnected nature of the global economy means that economic problems in one nation can be very difficult to contain.
This question is taken from Arnold’s book on macroeconomics, which you may like to read for a more detailed overview of this issue. In brief, though, this relates to areas of trade and foreign investment. Imagine that you have earned less money this year than you did last year. You might be less likely to spend what disposable income you have on things you consider to be nonessential, such as holidays. If you then do not take your usual foreign holiday to Spain, the person in Spain who normally gets your business at his hotel will suffer a loss. In this way, your foreign income has affected his income.
The same thing happens, on a larger scale, between nations. If a trading partner in the UK has less income than usual, it may mean that people in the UK are earning less and buying fewer of whatever good the trading partner buys from the USA. So, the partner buys fewer of the goods from its US trading partner. As a result, the US factory that employs the workers to make the product suffers a lowered demand and may have to lay off some workers to cover lost costs.
I am assuming that by "foreign income" you mean the income of people in foreign countries. Here's how that works:
Many of the things the US produces for export are high cost items. We are talking here about things like Microsoft Office, for example. Because of this, US exporters need people in other countries to get richer so they can afford our products.
So, if income does not grow in other countries, they are able to demand fewer American goods. When this happens, American companies (that rely on exports) might have to lay people off or forego hiring new people. Either way, it won't help employment.