macro unit 6

tariff

a tax imposed on imported good (protects domestic industries by making foreign goods more expensive)

quota

a legal limit on the quantity of a good that can be imported into a country over a specific time period

subsidy

financial assistance given to domestic producers by governments; lowers production costs to assist in competing against foreign imports

absolute advantage

the ability of an economy to produce more of a good or service given the same resources

comparative advantage

the ability of an economy to produce a good with lower opportunity cost

terms of trade

the ratio at which one country’s products are exchanged for anothers

world price

the price of a good that prevails in the world market

domestic price

the price of a good or service within a country; determined by local supply and demand (no trade)

current account

net trade + net earnings on cross-border investments + net transfer payments

balance of goods and service

the portion of the current account that measures net exports (exports - imports)

trade defecit

a country’s import value exceeds its exports

trade surplus

a country’s export values exceed its imports

capital account (financial account)

financial assets (stocks, bonds, real estate)

official reserves

the foreign currency and gold held by a country’s central bank to manage its exchange rate and settle international debts

flexible exchange rate

a system where a currency’s value is solely determined by supply and demand in forex market

fixed exchange rate

a system where the government/central bank ties the official rate to another country’s currency/price of gold

depreciation

a decrease in the value of a currency relative to another currency

appreciation

an increase in the value of a currency relative to another currency

General Agreement of Tariffs and Trade (GATT)

signed after WWII to promote international trade by reducing trade barriers like tariffs

World Trade Organization (WTO)

the international body that succeeded GATT; oversees global trade rules and settles trade disputes between member nations

North American Free Trade Agreement

A 1994 agreement that eliminated most tariffs between Mexico, Canada, and the United States