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Chapter IV. World Economy

Published online by Cambridge University Press:  26 March 2020

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Last February we suggested that the world economic situation presented governments with two main problems in 1971. One, the problem of world-wide inflation, was generally recognised. The other, the problem of the growing disequilibrium in the balance of payments of the United States, appeared to be inadequately appreciated. OECD, for example, had suggested two months earlier that the United States would combine a real economic growth rate of 4 per cent with a surplus of $2 billion on the current balance of payments. We ourselves predicted a growth rate of 3 per cent and a current deficit of $¾ billion, but even these figures proved over-optimistic. The rise in real GNP reached only 2 ¾ per cent and, partly because of strikes, there was probably a current deficit of the order of $3½ billion.

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Articles
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National Institute Economic Review , Volume 59 , February 1972 , pp. 48 - 79
Copyright
Copyright © 1972 National Institute of Economic and Social Research

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References

Note (1) page 50 Economic Outlook 10, December 1971, page 6.

Note (1) page 59 OECD, Economic Outlook 10, December 1971, page 30.

Note (1) page 60 Under the general supervision of a Cost-of-living Council, a Pay Board and a Price Commission have the responsibility of controlling increases, the degree of supervision varying with the size of the firm involved. Prior approval is required for pay adjustments affecting 5,000 or more employees or price rises by firms whose annual sales are valued at upwards of $100 million. The Council is a purely governmental body, the Board has equal representation from labour, business, and the general public, and the Commission has public members only. Both the Board and the Commission soon granted a number of special exemptions to the general rules.

Note (1) page 69 The method is identical with that described in detail in National Institute Economic Review, no. 57, November 1971, pages 29-32, except that effective exchange rate changes have not been calculated on bilateral trade but with weights, based on trade in manufactures in 1968-69, published in OECD, Economic Outlook 10, December 1971, page 97. The weights are said to take into account not only bilateral trade but also competition in third markets.

The OECD trade model is described in F. G. Adams, H. Eguchi and F. Meyer-zu-Schlochtern, An econometric analysis of international trade, OECD, Paris, January 1969; subsequent alterations in the model were described by Frans Meyer-zu-Schlochtern and Akira Yajima, ‘OECD Trade Model: 1970 Version’, OECD, Economic Outlook, December 1970 (Occasional Studies).

Note (1) page 70 In other words, the results accord reasonably closely with those of Case C in the theoretical realignments examined in the November Review (page 30).

Note (1) page 73 OECD, Economic Outlook 10, December 1971, page 10. For an earlier and fuller discussion of the worsening com petitive position of the United States see also National Institute Economic Review, no. 55, February 1971, pages 66-9.

Note (1) page 76 See National Institute Economic Review, no. 58, November 1971, page 26.

Note (1) page 77 The weighting used in table 17, based on total import trade of the major industrial countries, gives a net devaluation of the dollar of 1½ per cent. That used in table 11, based on total world trade in manufactures, halves this figure.