305_PPT_WK12.1-Ch17_STUDENT_F24

Openness in Goods Markets

The ability of consumers and firms to choose between domestic and foreign goods, influenced by tariffs and quotas.

Tariffs

Taxes on imported goods that limit free trade.

Quotas

Restrictions on the quantity of goods that can be imported.

Openness in Financial Markets

The ability of investors to choose between domestic and foreign financial assets.

Capital controls

Restrictions on the foreign assets that domestic residents can hold, and on the domestic assets that foreigners can hold.

Openness in Factor Markets

The ability of firms to choose production locations and workers to choose where to work, significant in trade agreements like NAFTA.

Net Exports

The value of a country's exports minus its imports.

Tradable goods

Goods that compete with foreign goods in domestic or foreign markets.

Nominal exchange rate

The price of the domestic currency in terms of foreign currency.

Nominal appreciation

An increase in the price of the domestic currency in terms of a foreign currency.

Nominal depreciation

A decrease in the price of the domestic currency in terms of a foreign currency.

Fixed exchange rates

A system where two or more countries maintain a constant exchange rate between their currencies.

Nominal revaluation

The government increases the value of the domestic currency.

Nominal devaluation

The government decreases the value of the domestic currency.

Real exchange rate (𝜺)

The price of domestic goods relative to foreign goods.

Real appreciation

Domestic goods can buy more foreign goods, or domestic goods become relatively more expensive.

Real depreciation

Domestic goods can buy less foreign goods, or domestic goods become relatively cheaper.

Purchasing Power Parity (PPP)

A long-run condition indicating that the same basket of goods must cost the same across different currencies.