Studied by 6 people
international trade
the exchange of goods and services between countries
comparative advantage
the theory that a country should specialize in goods that it can produce at the lowest opportunity cost
absolute advantage
when a country is able to produce a product using fewer factors of production than another country
protectionism
when a country seeks to limit free trade in order to protect themselves.
tariff
a tax on imported goods and services allowing more inefficient domestic firms to increase their production and market share
quota
a physical limit on imports usually set below the free market level
exchange rate
the price of one currency in terms of another
floating exchange rate
where the forces of demand and supply determine the rate at which one currency is exchanged for another
fixed exchange rate
where the country’s Central Bank intervenes in the currency market to fix the exchange rate in relation to another currency
managed exchange rate
where the exchange rate is allowed to fluctuate within a specific band around a desired valuation
Balance of payment
a record of all the financial transactions that occur between a country and the rest of the world
the current account
all transactions related to goods and services along with payments related to the transfer of income
goods
visible exports and imports
services
invisible exports and imports
the capital account
a record of small capital flows between countries
the financial account
a record of all transactions associated with changes of ownership of the countries foreign financial assets and liabilities
revenue rule
in order to increase revenue firms should lower prices for products that are price elastic in demand
marshall-lerner condition
if the combined elasticity of exports divided by imports is less than 1 a depreciation (fall in price) will actually worsen the current account balance
J-curve effect
the explanation that it takes time for firms and consumers to respond to a change in price
economic integration
occurs as countries reduce trading barriers and become more interdependent
trading bloc
a group of countries who come together and agree to reduce or eliminate barriers to trade that exist between them
free trade areas
a trading bloc in which countries agree to abolish trade restrictions between members but maintain their own restrictions with other countries
customs union
an agreement between countries in which all goods and services produced by a member are traded tariff free and countries agree on common tariff rates on imports from all external countries
common market
an agreement between countries in which all goods and services produced by a member are traded tariff free and all factors of production flow freely between member countries
monetary union
all goods and services are traded tariff free and all factors of production flow freely but a common Central Bank and currency are established
real GDP
the value of all goods and services produced in an economy in one year and adjusted for inflation
Gross National Income
the income earned by citizens operating outside the country + the GDP
purchasing power parity (PPP)
a conversion factor that shows the number of units of a country’s currency that are required to buy a product in the local economy
institutional framework
the functions of government including the legal system, law enforcement, banking, tax structures and property rights
import substitution
aims to increase domestic production and output by moving consumers away from imports by using tariffs or quotas
export promotion
aims to increase the level of exports through subsidies or connecting local firms with international buyers
increasing diversification
when a country is able to increase the number of products that it offers for export
social enterprise
a focus on meeting specific social objectives
interventionist policies
strategies put in place by governments to correct the failings of the free market and promote development
merit goods
goods which are beneficial to society but are under-provided in the market
inward foreign direct investment (FDI)
when investment by foreign firms results in more than a 10% share of ownership of domestic firms
Bilateral ODA (official development assistance)
government aid that promotes the economic development and welfare of developing countries.
multilateral ODA (official development assistance)
aid from a development agency that promotes the economic development and welfare of developing countries.
market oriented approaches
measures which aim to reduce government intervention and free up private-sector economic activity so that national output increases
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Flashcard (43)