Business spending by firms is called investment and consists of expenditures of capital goods that are used in producing goods and services. The economies of industrial nations are highly interdependent. As business conditions change in one country, business firms shift resources among countries so that economic conditions in one country spread to other countries. The international trade of the United States occurs primarily with the industrial countries especially Canada and Japan. Exports are products the United States sells to foreign countries.
Imports are products it buys from other countries.
Microeconomic policy deals with providing public goods, correcting externalities, and promoting competition. Households own the factors of production and sell them to firms in return for income. Business firms combine the factors of production into goods and services and sell them to households and the international sector in exchange for revenue. The international sector buys and sells goods and services to business firms. The circular flow diagram illustrates these relationships.