Russia had been the U.S.'s ally during World War II, its adversary throughout the Cold War, and has been moving toward ally status again. No matter what has happened to political and cultural ties between the countries, economic ties have been minimal and trade with Russia has never had much of a direct impact on the U.S. economy. The Russian government's decision to devalue the ruble by 34 percent will consequently not have a significant impact on U.S. economic growth.

Last year, exports to Russia amounted to $3.4 billion, about .5 percent of total U.S. exports world wide; imports were $4.3 billion, an insignificant portion of the total U.S. import bill of $871 billion. In spite of the small volume of trade with Russia, the devaluation will be noticed in the U.S. Some companies have invested a significant amount in Russia and will likely suffer reduced earnings due to the decline of the ruble. Exports to Russia will also be reduced as the devaluation raises the costs of our goods to Russians.

Some U.S. firms with operations in Russia and making heavy use of locally produced goods and local labor will benefit from the ruble's decline. For example, Coke employs over 7,000 workers whom it pays in rubles, and the vast majority of the ingredients in Coke are made in Russia. The devaluation should reduce some of Coke's production costs valued in dollars.

1. What are the components of aggregate demand?
2. Describe how a decline in exports and an increase in imports affect aggregate demand and macroeconomic equilibrium.
3. According to the article, the impact of the Asian financial crisis was partially offset by increased demand for U.S. securities. Explain how an increase in the demand for U.S. bonds affects the interest rate and how changes in the interest rate affect aggregate demand.