AP Macroeconomics Vocabulary - Balance of Payments and Exchange Rates

Flashcards covering key vocabulary terms from AP Macroeconomics topics related to Balance of Payments and Exchange Rates.

Balance of Payments (BOP)

A summary of a country’s transactions with other countries.

Current Account (CA)

A country’s balance of payments on goods and services plus net international transfer payments and factor income.

Trade Balance

The difference between the value of a country’s exports and imports, also referred to as a country’s net exports.

Financial Account

The difference between a country’s sales of assets to foreigners and its purchases of assets from foreigners during a given time period.

Capital Account

Measures transfers of assets not included in the financial account.

Capital and Financial Account (CFA)

Includes both the financial and capital accounts and measures a country’s status as a net debtor or creditor to the rest of the world.

Foreign Exchange Market

The market showing the supply and demand for currency where foreign currencies are traded for one another.

Exchange Rate

The price at which currencies are traded.

Appreciation

When a currency becomes more valuable in terms of another currency.

Depreciation

When a currency becomes less valuable in terms of another currency.

Purchasing Power Parity

The nominal exchange rate at which a given basket of goods and services would cost in a different country.

Real Exchange Rate

Exchange rates adjusted for international differences in aggregate price levels.

Equilibrium Exchange Rate

The exchange rate at which the quantity of a currency demanded in the foreign exchange market is equal to the quantity supplied.

Devaluation

A reduction in the value of a currency that is set under a fixed exchange rate regime.

Revaluation

An increase in the value of a currency that is set under a fixed exchange rate regime.

Protectionism

The practice of limiting trade to protect domestic industries.

Tariff

A tax on imports (paid by the importer).

Import Quota

A limit on the quantity of a good that can be imported within a given time period.