AP Macro Unit 6

Balance of Payments

a record of all international transactions/ALWAYS EQUAL TO 0

Current Account

a component of a country’s balance of payments (BOP) that records transactions related to trade in goods and services, transfers, income

Transfers

one-way transfers of money or goods between countries, such as foreign aid, remittances, or gifts

Remittances

a sum of money sent, especially by mail, in payment for goods or services or as a gift/the action of sending money in payment 

Capital (aka Financial) Account

a record of the flow of money into and out of a country from international investment transactions/a component of a country’s balance of payments (BOP) that records transactions related to investments, capital transfers, reserve assets

Capital Transfers

(USA Bureau of Economic Analysis) - Cash or in-kind transactions in which the ownership of an asset is transferred from one economic unit to another, in which cash is transferred to enable the recipient to acquire another asset, or in which the funds realized by the disposal of another asset are transferred.

Reserve Assets

currencies or other assets, such as gold, that can be readily transferable and used to balance international transactions and payments.

Capital Flows

the movement of capital (money!) across international borders for investment (inflows & outflows) purposes, encompassing both inflows and outflows of funds. 

Financial Capital

monetary resources available for investment, production, or consumption. 

Trade Deficit

occurs when a country imports more goods/services than it exports, resulting in a negative trade balance.  (imports > exports)

Trade Surplus

occurs when a country exports more goods and services than it imports, resulting in a positive trade balance. (exports > imports)

FOREX

foreign exchange

Exchange Rate

the rate at which one currency will be exchanged for another currency; affects trade and the movement of money between countries. (relative)

Foreign Exchange Market

a global marketplace where currencies are bought and sold.

Nominal Exchange Rate

the rate at which a person can trade the currency from one country for the currency of another international entity.

Comparative Advantage

describes a situation in which an individual, business, or country can produce a good or service at a lower opportunity cost than another producer. 

Absolute Advantage

*pick the biggest number

describes a situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources 

Terms of Trade

under which mutually beneficial trade can occur