AP MACROECONOMICS - Unit 6 Vocab

Tariffs

Taxes on imported goods

Revenue Tariff

Used exclusively to generate government revenue

Protective Tariff

Used to protect domestic industries

Quota

A limit on the amount of goods that can be imported

Embargo

Government order which completely blocks all trade with a particular country (usually due to political reasons)

Subsidy

A direct payment to a domestic industry , designed to increase exports or to protect that industry

Downsides of tariffs

Raises prices on imported goods, leads to reallocation of resources to inefficient producers, and hinder innovation

Benefits of tariffs

Protect domestic labor and industries and generate government revenue

Free Trade

The free-flow of goods and services between countries without any restrictions/barriers

Balance of Payments (BOP)

Overall record of all economic transactions of a country with the rest of the world

Balance of Trade

Difference in value of exports and imports of only visible items (not stocks or bonds)

Net exports

Exports - Imports

Trade Surplus

Exports > Imports

Trade Deficit

Exports < Imports

Current Account

Consists of trades in goods & services, investment income, and net transfers

Capital (Financial) Account

Measures purchase and sale of financial assets abroad (bonds and stocks)

Net Capital Outflow

Difference between purchase of foreign assets and domestic assets purchased by foreigners

Capital (Financial) Account Surplus

Inflows > Outflows (Credits > Debits)

Capital (Financial) Account Deficit

Inflows < Outflows (Credits < Debits)

Official Reserves Account

Involves foreign assets, such as foreign currency

Double Entry Bookkeeping

Every transaction in the BOP is recorded twice in accordance with standard account practice (ex: what goes into credit in the current account ends up as debit in the capital account)

Exchange Rate

Relative price of currencies (ex: 1 dollar = 5 pesos)

Depreciation

When exchange rate falls (currency becomes less valuable)

Appreciation

When exchange rate rises (currency becomes more valuable)

Foreign Exchange (FOREX)

The buying and selling of currencies

Changes to FOREX

Changes in tastes, changes in incomes, changes in price level, changes in relative interest rates

Fixed Exchange Rate

Government actively manages the country’s currency

Floating Exchange Rate

The market determines the value of the country’s currency