Studied by 5 peoplepower parity
Purchasing ________ (PPP): theory that nominal exchange rates are deter mined as necessary for the law of one price to hold.
U.S.
________ households and firms supply dollars to the foreign exchange market to acquire foreign currencies, which they need to purchase foreign goods, services, and assets.
Appreciation
________: increase in the value of a currency relative to other currencies.
Depreciation
________: decrease in the value of a currency relative to other currencies.
Trade deficit
________: when imports exceed exports, the difference between the value of a country's imports and the value of its exports in a given period.
tight monetary policy
A(n) ________ raises the real interest rate, increasing the demand for dollars, reducing the supply of dollars, and strengthening the dollar.
Trade
________ balance= net exports: value of a country's exports less the value of its imports in a particular period (quarter or year)
Nominal exchange rate
________: rate at which two currencies can be traded for each other.
Trade surplus
________: when exports exceed imports, the difference between the value of a country's exports and the value of its imports in a given period.
Capital inflows
________: purchases of domestic assets by foreign households and firms.
Nominal exchange rate
rate at which two currencies can be traded for each other
Appreciation
increase in the value of a currency relative to other currencies
Depreciation
decrease in the value of a currency relative to other currencies
Flexible exchange rate
exchange rate whose value is not officially fixed but varies according to the supply and demand for the currency in the foreign exchange market
Foreign exchange market
market on which currencies of various nations are traded for one another
Fixed exchange rate
exchange rate whose value is set by official government policy
Market equilibrium value of the exchange rate
exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market
Real exchange rate
price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency
Law of one price
if transportation costs are relatively small, the price of an internationally traded commodity must be the same in all locations
Purchasing power parity (PPP)
theory that nominal exchange rates are deter mined as necessary for the law of one price to hold
Trade balance = net exports
value of a country's exports less the value of its imports in a particular period (quarter or year)
Trade surplus
when exports exceed imports, the difference between the value of a country's exports and the value of its imports in a given period
Trade deficit
when imports exceed exports, the difference between the value of a country's imports and the value of its exports in a given period
International capital flows
purchases/sales of real and financial assets across international borders
Capital inflows
purchases of domestic assets by foreign households and firms
Capital outflows
purchases of foreign assets by domestic households and firms
Net capital inflows
capital inflows minus capital outflows
Nominal exchange at rate
Rate at which two currencies can be traded for each other
Appreciation
Increase in the value of a currency relative to other currencies
Depreciation
Decrease in the value of a currency relative to other currencies
Flexible exchange rate
Exchange rate whose value is not officially fixed but varies according to the supply and demand for the currency in the foreign exchange market
Foreign exchange market
Market on which currencies of various nations are traded for one another
Fixed exchange rate
Exchange rate whose value is set by official government policy
Real exchange rate
Price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency
Law of one price
If transportation costs are relatively small, the price of an internationally traded commodity must be the same in all locations
Purchasing power parity (PPP)
Theory that nominal exchange rates are deter mined as necessary for the law of one price to hold
Trade balance = net exports
Value of a country's exports less the value of its imports in a particular period (quarter or year)
Trade surplus
When exports exceed imports, the difference between the value of a country's exports and the value of its imports in a given period
Trade deficit
When imports exceed exports, the difference between the value of a country's imports and the value of its exports in a given period
International capital flows
Purchases/sales of real and financial assets across international borders
Capital inflows
Purchases of domestic assets by foreign households and firms
Capital outflows
Purchases of foreign assets by domestic households and firms
Net capital inflows
Capital inflows minus capital outflows
Note 
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