Most large businesses are organized as corporations. A corporation is a legal entity owned by shareholders whose liability for the firm's debts is limited to the value of the stock they own (limited liability). A corporation has the legal standing of a fictional individual. Because its owners enjoy limited liability for the debts of the business, a corporation can raise huge amounts of funds by selling stock. One disadvantage faced by a corporation is that it is subject to double taxation: dividends paid to shareholders are taxed once under the corporate income tax and then again under the personal income tax. A second disadvantage is the separation of ownership from control. Those managing the corporation may not act in the best interests of the shareholders.
The government taxes, spends (partly on public goods), and regulates (to correct for externalities). All levels of government together purchase about 20% of all the goods and services produced each year.
The financial sector acts as an intermediary between savers and investors. The financial sector includes financial markets such as stock and bond markets and financial intermediaries like banks, mutual funds, and insurance companies.
The American economy has extensive interactions with the rest of the world. Trade in goods, services, and income is one such interaction. Exports are products made in this country and sold abroad; imports are foreign made products purchased by Americans.
A trade deficit occurs when a country imports more than it exports. The country receives fewer funds from its exports than it paid out for the imports. As a result, the nation must borrow from abroad to obtain the additional funds necessary to purchase the foreign goods.