| A | B |
|---|
| depreciation | when a country's currency goes down in value relative to another country's currency |
| appreciation | when a country's currency goes UP in value relative to another country's currency |
| exchange rate | the price of one country's currency (ex. dollar) in terms of another currency (ex. euro); How many euros does it take to buy one dollar? |
| forex | short for foreign exchange; currency trading |
| trade surplus; positive trade balance | when a country's exports exceed its imports |
| trade deficit; negative trade balance | when a country's imports exceed its exports |
| current account | money spent on imports and exports; transfers of money; INCOME EARNED on investments |
| capital/financial account | money spent on investments (stocks, bonds, real estate) in another country |
| current account + financial account = | ZERO |
| When I buy a toy from China, what account would the transaction be included in? | current account |
| When I invest in German bonds or a Japanese company's stock, what account is that transaction included in? | financial/capital account |
| quota | trade barrier that puts a limit on how much of a good can be imported into a country |
| tariff | trade barrier that is a tax on imported goods |
| embargo | total prevention of trade with a country, trade barrier |
| subsidy | government (taxpayer) payments to a domestic business to help that business produce more products |
| comparative advantage | when a country can produce a good at a lower opportunity cost than another country |
| absolute advantage | when a country can produce MORE of a product than another country |
| foreign direct investment | when a foreign company builds a factory in the United States (ex. German BMW plant in South Carolina) |
| real interest rates matter most in what market? | loanable funds market |
| human capital | training and education of workers |
| when the dollar appreciates, what happens to US exports? | US exports go down (our stuff is more expensive to foreigners) |
| When a Korean firm sells $500 million worth of cell phones in the US, what kind of transaction is it? | current account |
| rational expectations theory | the economic theory that people respond to incentives (lower interest rates, people borrow more money) |
| EU and ASEAN | free trade zones in Europe and Southeast Asia |
| protectionists | oppose free trade; want to "protect" USA from foreign competition |
| NAFTA | North American free trade agreement |
| money market | supply and demand for money in the USA |
| Trade deficits tend to make the dollar: | weaker (we supply more dollars on forex market) |
| Does free trade allow a country to consume beyond its production possibilities frontier? | YES |
| standard | strict safety rule designed to limit imports into a country |
| will countries trade if neither has a comparative advantage in a product? | NOPE |
| financial asset | a stock or a bond |
| what do higher real interest rates in the USA do to the dollar? | dollar stronger (foreigners want to invest here, they demand more dollars to invest in USA) |
| what do trade barriers do to the price of imports? | increase prices |
| financial and real assets are part of which account? | capital/financial account |
| if the US has high inflation, what will happen to US exports? | US exports go down (our prices are too high because of inflation) |
| allocative efficiency | how efficiently resources are employed (like labor, land and capital) |
| do trade barriers improve allocative efficiency? | of course not, don't be ridiculous |
| Is free trade better than protectionism? | Only if you ever need to buy anything at all |
