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Macroeconomics
practice round 1
| Term | Definition |
|---|---|
| exchange rate | the price of one currency in terms of another currency; for example, if the exchange rate for the Euro (€) is 132 Yen (¥), that means that each Euro that is purchased will cost 132 yen. |
| foreign exchange market | a market in which one currency is exchanged for another currency; for example, in the market for Euros, the Euro is being bought and sold, and is being paid for using another currency, such as the yen. |
| demand for currency | a description of the willingness to buy a currency based on its exchange rate; for example, as the exchange rate for Euros increases, the quantity demanded of Euros decreases. |
| appreciate | when the value of a currency increases relative to another currency; a currency appreciates when you need more of another currency to buy a single unit of a currency. |
| depreciate | when the value of a currency decreases relative to another currency; a currency depreciates when you need less of another currency to buy a single unit of a currency. |
| floating exchange rates | when the exchange rate of currencies are determined in free markets by the interaction of supply and demand |
| Current Account | Focuses on the difference between the total value of imports and exports of goods and services, the net factor income, and net cash transfers |
| Capital account | Focuses on the change in assets. (When someone outside the US buys assets in the US/When a US citizen buys foreign assets.) |
| Full balance of payments equation | Current account+Capital account=0 (CA+FCA=0) |
| Chinese Yuan and US dollar) When the Yuan depreciates... | In China, imports of US goods will decrease (US goods are more expensive for the Chinese). In the US, imports of Chinese goods will increase (Chinese goods are cheaper) |
| open economy | an economy that allows the exchange of both goods and assets with other countries |
| Why is the aggregate demand curve downward sloping? | The aggregate demand curve slopes downward because at a higher price level the purchasing power of consumers' wealth declines and consumption decreases. |
| Velocity of money | How many times a dollar changes hands in a year |
| Equation for the velocity of money | M x V= P x Y M=Money supply Y=Real GDP P=Price level V= Velocity of money |
| Money neutrality | The concept that an increase in the supple of money will only affect prices without impacting the real economy. |
| Monetarism | a way of analyzing the impact of monetary and fiscal policy actions based on the equation of exchange |
| explain what the equation of exchange is | a mathematical identity that describes the relationship between the money supply and nominal GDP |
| the quantity theory of money | an increase in money supply creates inflation and vice versa. |
| monetary policy | the use of the money supply to influence macroeconomic aggregates, such as output, inflation, and unemployment |
| expansionary monetary policy | monetary policy designed to increase aggregate demand, increase output, and decrease unemployment; |
| contractionary monetary policy | monetary policy designed to decrease aggregate demand, decrease output, and increase unemployment |
| open market operations | the buying and selling of securities, such as bonds, by a central bank to change the money supply |
Created by:
watsonfamily
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