AP Macroeconomics Unit 6

current account

net exports, net income from abroad, and net unilateral transfers

capital account

purchase of assets (stock, currency, bonds)

money in

credit/inflow

money out

debit/outflow

current+capital accounts

0

exports> imports

trade surplus

exports< imports

trade deficit

Inc in domestic PL

inc imports, dec exports, dec current account

inc in foreign national income

inc exports, inc current account,

inc interest rates

capital inflow, inc capital account, appreciation

dec interest rates

capital outflow, dec capital account, depreciation

appreciation

inc exchange rate

depreciation

dec exchange rate

demand shifters on foreign exchange graph

demand for exports (foreign tastes, foreign national income, price levels), interest rates, expected exchange rate

supply shifters on foreign exchange graph

demand for imports, interest rates, expected exchange rate

When currency appreciates

Imports cheaper, exports more expensive, Xn dec

When currency depreciates

Imports more expensive, exports cheaper, Xn inc

cause of capital inflow

Higher domestic interest rates

does capital inflow lead to appreciation or depreciation?

appreciation

what is an example of credit entry in the country’s current account?

exports of consumer goods

Financial capital flows move in the ___ direction to the goods and services trade claims that give rise to them

opposite

Assuming the government of a country imposes a tariff on its imports of foreign goods, what is the likely effect on the country’s currency in foreign exchange markets?

The supply of the currency will decrease and the currency will appreciate

high interest rates lead to ____

financial outflows from low interest country to high interest country

A country with a current account deficit is a net _____ from the rest of the world

borrower

A country with a current account surplus is a net ______ to the rest of the world

lender

What would worsen a nation’s trade deficit

higher rate of inflation relative to other nations