Principles of Macroeconomics: A Macroeconomic Theory of the Open Economy

These flashcards cover key vocabulary and concepts from the lecture on the macroeconomic theory of the open economy, focusing on topics such as interest rates, capital flows, exchange rates, and trade policies.

Real Interest Rate

The interest rate that has been adjusted for inflation, reflecting the true cost of borrowing and the true yield to lenders.

Net Capital Outflow (NCO)

The net flow of capital out of a country, calculated as the total outflow of capital minus the inflow.

Trade Balance

The difference between a country's exports and imports of goods and services; a positive balance indicates a trade surplus, while a negative balance indicates a trade deficit.

Exchange Rate

The price of one country's currency in terms of another currency.

Loanable Funds Market

A market where borrowers and lenders come together; the supply of loanable funds comes from savings, and the demand is from investment.

Supply of Loanable Funds

The total amount of money available for borrowing in the economy, primarily from national savings.

Demand for Loanable Funds

The total amount of money that borrowers are willing to lend, which consists of domestic investment and net capital outflow.

Budget Deficit

A situation where a government's expenditures exceed its revenues, leading to borrowing from the money market.

Tariff

A tax imposed on imported goods, often used to protect domestic industries from foreign competition.

Import Quota

A government-imposed limit on the quantity of goods that can be imported from a specific country.

Trade Surplus

A situation in which a country's exports exceed its imports.

Capital Flight

A large and sudden reduction in the demand for assets located in a country, often due to political instability or economic crises.

Equilibrium Real Exchange Rate

The exchange rate at which the quantity of a currency demanded equals the quantity supplied.

Political Instability

A situation characterized by uncertainty in a country's political environment that can deter investment and lead to capital flight.

Foreign-Currency Exchange

The market where participants trade one currency for another, crucial for international trade.