macro unit5/6

Appreciation

An increase in the value of a currency as measured by the amount of foreign currency it can buy.

Balanced Trade

A situation in which exports equal imports.

Capital Flight

A large and sudden reduction in the demand for assets located in a country.

Catch-up Effect

The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.

Closed Economy

An economy that does not interact with other economies in the world.

Depreciation

A decrease in the value of a currency as measured by the amount of foreign currency it can buy.

Diminishing Returns

The property whereby the benefit from an extra unit of an input declines as the quantity of the input increases.

Exports

Goods and services that are produced domestically and sold abroad.

Human Capital

The knowledge and skills that workers acquire through education and on-the-job training.

Imports

Goods and services that are produced abroad and sold domestically.

Natural Resources

The inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.

Natural-rate Hypothesis

The claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation.

Net Capital Outflow

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.

Net Exports

Spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).

Nominal Exchange Rate

The rate at which a person can trade the currency of one country for the currency of another.

Open Economy

An economy that interacts freely with other economies around the world.

Phillips Curve

A curve that shows the short-run trade-off between inflation and unemployment.

Physical Capital

The stock of equipment and structures that are used to produce goods and services.

Productivity

The quantity of goods and services produced from each unit of labor input.

Purchasing Power Parity

A theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

Rational Expectations

The theory that people optimally use all the information they have, including information about government policies, when forecasting the future.

Real Exchange Rate

The rate at which a person can trade the goods and services of one country for the goods and services of another.

Sacrifice Ratio

The number of percentage points of annual output lost in the process of reducing inflation by a percentage point.

Supply Shock

An event that directly alters firms’ costs and prices, shifting the economy’s aggregate-supply curve and thus the Phillips curve.

Technological Knowledge

Society’s understanding of the best ways to produce goods and services.

Trade Balance

The value of a nation’s exports minus the value of its imports; also called net exports.

Trade Deficit

An excess of imports over exports.

Trade Surplus

An excess of exports over imports.