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AP Macro Unit 6
| Term | Definition |
|---|---|
| Balance of Payments | statistic that helps track the international trade of one country; made up of two parts, current account balance and financial account balance |
| Current Account Balance | the money value of the goods and services exported minus the money value of goods and services imported |
| Financial Account Balance | the money value of financial assets (paper/financial/assets such as stock, bonds, and financial securities) sold by a country to other countries minus the money value of financial assets purchased by a country from other countries |
| Trade Deficit | a negative current account balance and exports are less than imports |
| Trade Surplus | a positive current account balance and exports are greater than imports |
| Unfavorable (Negative) Balance of Trade | importing is more than exporting (creating a trade deficit) and was avoided |
| Favorable (Positive) Balance of Trade | exporting more than importing (creating a trade surplus) |
| Mercantilism | idea that dominated international trade from 1400-1800; belief in the benefits of profitable trading |
| Protective Tariff | taxes on imported goods/services, designed to make imports higher priced than domestic made goods/services; called neo-mercantilism |
| Absolute Advantage | |
| Opportunity Cost | nations should focus on only producing those products they produce more efficiently and at a lower opportunity cost than other nations |
| Comparative Advantage | situation in which a country produces a product least inefficiently compared to other national (lower opportunity costs) |
| Import Quota | limits on the number of imports; rules and regulations against imports |
| GATT (General Agreement on Tariffs and Trade) | 1947 international agreement that starts the process of gradually reducing trade barriers between nations |
| WTO (World Trade Organization) | members of the WTO (164 nations) agree not to restrict imports coming into their country; members who believe a nation has violated this agreement can bring grievances before the WTO |
| National Security Argument | protect certain industries that are essential to national security |
| Infant Industry Argument | protection of infant industries; new industries that need some protection from foreign competition so they can develop and become competitive |
| Strategic Trade Policy (Argument) | using trade restrictions to retaliate against countries that do not trade fairly |
| Austerity Measures | forcing countries to adopt contractionary fiscal and monetary policy; raise taxes, cut government spending, raise interest rates |
| International Monetary Fund (IMF) | for currency crisis (mostly developing world); with rapid devaluation of a currency comes hyperinflation so the IMF purchases substantial amounts of the at risk currency to increase the demand for money and increase the value of the currency |
| Most Favored Nation Status | gives a nation the best trade position in the US (MFN); ; if one country gives another country the status of most favored nation in trading the other country will do that same for that country |
| Export Subsidies | subsidies that make it easier for businesses to export products (helps keep their prices low) |
| World Bank | often works with the IMF to stabilize developing countries and improve their economies in the long run (infrastructure and education) |
| Open Economy | includes international component when analyzing economies (makes analysis much more complicated) |
| Closed Economy | excludes international component (simplifies analysis) |
| Exchange Rates | value/price of currency in terms of other currencies |
| Fixed Exchange Rates | when a government/central bank sets the value of their country’s money vs. other countries |
| Revaluation | increasing the value of a nation’s money (by the government/central bank) |
| Devaluation | lowering the value of a nation’s money (by the government/central bank) |
| Flexible (Floating) Exchange Rates | value of money is determined on international exchange markets through the forces of supply and demand (the value of money on the international exchange markets is especially influenced by the international demand for a country’s money) |
| Appreciation | increase in the value of money |
| Depreciation | decrease in the value of money |
| International Exchange Markets | allow for the trading of foreign currencies; participants can buy, sell, exchange, and speculate on the relative exchange rates of currency pairs |
| Parity Theory of Exchange Rates | |
| Capital Flows | |
| Exporters | |
| Importers | |
| Countries with relatively higher rates of inflation: the demand for their goods/services ______ because they are relatively more expensive | decreases |
| When the demand for a countries goods/services drops, the demand for their money _______ | decreases |
| When the demand for a country's money drops, the value of their money _______ | decreases |
| Countries with relatively lower rates of inflation: the demand for their products _______, because they are relatively less expensive | increases |
| When the demand for a countries goods/services rises, the demand for their money _______ | increases |
| When the demand for a country's money rises, the value of their money _______ | increases |
| Countries with relatively higher GDP Growth: the demand for their goods/services _______ because other countries have relatively less National Income with which to buy their products | decreases |
| Countries with relatively lower GDP Growth: the demand for their products __________, because other countries have relatively more National Income with which to buy their products | increases |
| Countries with relatively higher interest rates: the demand for their government securities ________ because the higher interest rates make that nation’s securities a better investment | increases |
| Countries with relatively lower interest rates: the demand for their government securities _______ because the lower interest rates make that nation’s securities a worse investment | decreases |
| If the demand for a nation’s other investments (stocks/bonds) increase, the demand for a nation’s money _________ | increases |
| If the demand for one nation’s money is up, the demand for the other nation’s money ________ | decreases |
| When the demand for a nation’s money is up in the international money market, the supply of that currency ______ in the market | decreases |
| When the demand for a nation’s money is down in the market, the supply of that money _______ in the market | increases |
| When the value of a nation’s money _______, they will import more, and export less | increases |
| When the value of a nation’s money ______, they will import less, and export more | decreases |
Created by:
rcooke
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