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A comprehensive set of vocabulary flashcards covering key concepts, models, and policies discussed in the International Economics lecture series, organized to aid English-language review and exam preparation.
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International Economics
The study of how nations interact through trade in goods and services, money, and investment flows.
Export
A good or service produced domestically and sold abroad.
Import
A good or service produced abroad and purchased domestically.
Gross Domestic Product (GDP)
The market value of all final goods and services produced within a country’s borders in a given period.
Gross National Product (GNP)
The market value of all final goods and services produced by a nation’s residents, regardless of location, in a given period.
Comparative Advantage
A country's ability to produce a good at a lower opportunity cost than another country.
Absolute Advantage
The ability of a country to produce a good using fewer resources than another country.
Opportunity Cost
The value of the best alternative forgone when a choice is made.
Production Possibility Frontier (PPF)
A curve showing all efficient combinations of two goods an economy can produce with given resources and technology.
Unit Labor Requirement
The number of labor hours needed to produce one unit of output.
Marginal Product of Labor (MPL)
The additional output produced by employing one more unit of labor.
Relative Price
The price of one good in terms of another good.
Gravity Model
A model that predicts bilateral trade flows based on economic size (GDP) and distance between countries.
Economies of Scale
Cost advantages that firms obtain due to expansion of production.
Specific Factor
A factor of production that is immobile across industries in the short run (e.g., land or specialized capital).
Mobile Factor
A factor of production, such as labor, that can move freely between industries.
Stolper-Samuelson Theorem
In the Heckscher-Ohlin model, a rise in the relative price of a good raises the real return to the factor used intensively in that good and lowers the real return to the other factor.
Rybczynski Theorem
With constant prices, an increase in one factor of production increases output of the good using that factor intensively and decreases output of the other good.
Factor Price Equalization
The prediction that free trade will equalize the returns to identical factors of production across countries.
Heckscher-Ohlin (H-O) Model
A trade model in which comparative advantage is determined by countries’ relative factor endowments.
Skilled-Biased Technological Change
Technological progress that increases the demand for skilled labor relative to unskilled labor.
Effective Rate of Protection (ERP)
The percentage change in domestic value added per unit caused by a tariff structure.
Ad Valorem Tariff
A trade tax calculated as a percentage of the good’s value.
Specific Tariff
A trade tax levied as a fixed amount per physical unit of the imported good.
Import Quota
A direct restriction on the quantity of a good that may be imported.
Export Subsidy
A payment by the government to a firm or individual that ships goods abroad.
Consumer Surplus
The difference between what consumers are willing to pay and what they actually pay.
Producer Surplus
The difference between the price producers receive and the minimum they would accept.
Balance of Payments (BOP)
A country’s record of all economic transactions with the rest of the world.
Current Account (CA)
The part of the BOP that records trade in goods and services, income receipts, and unilateral transfers.
Financial Account (FA)
The part of the BOP that records transactions in financial assets between residents and non-residents.
Capital Account
The BOP category that records transfers of non-produced, non-financial assets and debt forgiveness.
Official Reserve Assets
Foreign currency, gold, and other assets held by central banks to manage exchange rates.
Exchange Rate
The price of one currency in terms of another currency.
Appreciation (Currency)
An increase in the value of a currency relative to others.
Depreciation (Currency)
A decrease in the value of a currency relative to others.
Spot Rate
The current exchange rate for immediate delivery of currencies.
Forward Rate
An agreed-upon exchange rate for currency delivered at a future date.
Covered Interest Parity (CIP)
Condition stating that returns on domestic and foreign deposits are equal when exchange rate risk is hedged with a forward contract.
Uncovered Interest Parity (UIP)
Condition stating that expected returns on domestic and foreign deposits are equal without forward cover, implying expected exchange rate changes offset interest differentials.
Carry Trade
A strategy of borrowing in low-interest currencies and investing in high-interest currencies.
Money Supply (Ms)
The total quantity of money (currency plus deposits) in an economy at a point in time.
Money Demand (Md)
The desired holding of financial assets in the form of money by the public.
Liquidity
The ease with which an asset can be converted into a medium of exchange without loss of value.
Interest Parity Condition
The equilibrium condition equating returns on domestic and foreign interest-bearing assets.
Exchange Rate Overshooting
A short-run exchange rate change that exceeds its long-run response to a monetary shock.
Sterilized Intervention
Central-bank purchase or sale of foreign currency offset by opposite domestic open-market operations to leave the money supply unchanged.
Unsterilized Intervention
Central-bank purchase or sale of foreign currency that changes the domestic money supply.
Devaluation
An official reduction in the par (fixed) value of a currency under a fixed-rate regime.
Revaluation
An official increase in the par value of a currency under a fixed-rate regime.
Capital Flight
Large and sudden capital outflows from a country, usually due to fears of devaluation or default.
Optimum Currency Area (OCA)
A geographic region in which it is economically optimal to share a single currency.
Monetary Efficiency Gain
The benefit from reduced transaction costs and exchange-rate uncertainty when joining a currency area.
Economic Stability Loss
The cost of losing autonomous monetary and exchange-rate policy when joining a currency area.
Quantity Theory of Money
The long-run proposition that changes in the money supply lead to proportional changes in the price level.
Real Exchange Rate
The nominal exchange rate adjusted for relative price levels between two countries.
Terms of Trade
The ratio of a country’s export prices to its import prices.
Specific Factors Model
A short-run trade model where some factors are immobile between sectors, explaining income distribution effects of trade.
Tariff-Rate Quota
A policy that applies a low tariff up to a quota amount and a higher tariff above it.
Quota Rent
The extra profit obtained by holders of import licenses under a quota.
Exchange-Rate Risk
The uncertainty about future currency values that affects returns on cross-border investments.
Default Risk
The possibility that a borrower will fail to repay interest or principal on a loan.
Risk Premium
The additional return demanded by investors to compensate for risk, often included in interest-rate differentials.
Balance-of-Payments Crisis
A situation in which a country’s central bank lacks sufficient foreign reserves to maintain a fixed exchange rate, leading to devaluation.
Marshall–Lerner Condition
The requirement that the sum of export and import demand elasticities (in absolute value) exceeds one for a depreciation to improve the trade balance.
Current Account Deficit
When a country’s imports of goods, services, and transfers exceed its exports and income receipts.
Capital Account Convertibility
Freedom from restrictions on cross-border movements of capital.
Purchasing Power Parity (PPP)
The theory that the nominal exchange rate adjusts so that identical goods cost the same in different countries.
Law of One Price
The principle that identical goods should sell for the same price in different markets when expressed in a common currency.
Trade Creation
A welfare-enhancing increase in intra-bloc trade resulting from formation of a free-trade area or customs union.
Trade Diversion
A welfare-reducing shift of imports from lower-cost non-members to higher-cost members after forming a preferential trade agreement.
North American Free Trade Agreement (NAFTA)
The 1994 free-trade agreement among the United States, Canada, and Mexico, replaced by USMCA in 2020.
USMCA
The 2020 United-States–Mexico–Canada Agreement that updated and replaced NAFTA.
Service Offshoring
Relocation of service activities to foreign locations, often via electronic transmission.
Exchange Controls
Government restrictions on the purchase and sale of foreign currency.
Interest Rate Parity Puzzle
The empirical finding that uncovered interest parity often fails due to persistent excess returns on carry trades.
Official Settlements Balance
The net change in a central bank’s foreign assets, reflecting intervention to balance payments.
Money Market
The market where short-term funds and monetary assets are lent and borrowed.
Futures Contract
A standardized agreement to buy or sell a specified amount of a currency at a predetermined price on a set future date.
Options Contract
A contract that gives the holder the right, but not the obligation, to buy (call) or sell (put) a currency at a specified price before a certain date.
Dutch Disease
Economic harm caused when a booming resource sector leads to currency appreciation and declines in other export sectors.
Marshallian Elasticities Approach
Analysis of how devaluation affects the trade balance based on price elasticities of exports and imports.
Loanable Funds Theory
The theory that the real interest rate is determined by the supply of saving and the demand for investment.
Optimum Tariff
A tariff rate that maximizes national welfare by exploiting a country’s market power in world trade.