International Economics Practice Flashcards

A comprehensive set of fill-in-the-blank flashcards covering international economics topics including balance of payments, forex markets, national accounting, and the EMU based on the lecture transcript.

Measurement Approaches

The three ways to measure a country's aggregate economic activity are the expenditure approach, the __________ approach, and the income approach.

Gross National Expenditure (GNE)

In a closed economy, the formula for Gross National Expenditure (GNE) is expressed as __________.

Open Economy GDP

In an open economy, the formula for Gross Domestic Product (GDP) is expressed as $Y = C + I + G + EX - IM$ or __________.

Gross National Disposable Income (GNDI)

The formula for Gross National Disposable Income is $GNDI = GNE + TB + NFIA + UT$, which can also be written as __________.

Balance of Payments Zero Rule

The overall balance of payment has to add up to zero, which is represented by the formula __________.

Debt Forgiveness Recording

If the U.S. forgives a debt owed by Pakistan, it is recorded as a debit in the U.S. __________ account.

Net International Investment Position (NIIP)

The __________ measures the value of all financial assets and financial liabilities of a country within a given period of time.

NIIP Change Approximation

Since the Capital Account ($KA$) is typically small, the change in the Net International Investment Position ($\triangle B$) is approximately equal to the __________.

Valuation Effects

Changes in the value of foreign assets and liabilities due to market fluctuations or exchange rate movements are known as __________.

Federal Reserve Intervention

Central banks perform __________ by buying or selling international reserves to influence the economy and money supply.

National Income Identity (Closed)

In a closed economy, the national income identity requires that domestic savings ($S$) must match domestic __________ ($I$).

Current Account Components

The current account ($CA$) is the difference between total savings and investment, which can be split into the __________ balance and the public balance.

Global Savings Glut

Chairman __________ recognized an excess of savings over investment opportunities worldwide, a phenomenon known as the "global savings glut."

Currency Appreciation Effect

All else equal, an __________ of a country’s currency makes its goods more expensive for foreigners and worsens the trade balance.

Forex Vehicle Currency

The U.S. dollar acts as a __________ because it facilitates trades initially not involving dollars more cost-effectively than direct exchanges.

Forward Discount Formula

The forward discount or premium is calculated using the formula __________.

Currency Swap

A __________ is a spot sale of a currency combined with a forward repurchase of that currency.

Asset Market Approach

According to the __________ approach, the exchange rate is a forward-looking variable determined by the current demand and supply and future expectations.

Interest Rate and Asset Price

There is a __________ relationship between the price and the return of an asset.

Interest Parity Condition

The foreign exchange market is in equilibrium when the __________ condition holds, meaning deposits of all currencies offer the same expected rate of return.

Covered Interest Parity (CIP)

The condition __________ holds when an investor eliminates exchange rate risk by using a forward contract.

Forward Bias Puzzle

The __________ occurs when the coefficient $\beta$ in the Uncovered Interest Parity (UIP) formula is found to be negative in empirical studies.

Carry Trade

The strategy involving borrowing in low-interest rate currencies to invest in high-interest rate currencies is called __________.

Money Multiplier

The __________ concept explains that a move in base money results in an increase in the money stock that is a multiple of the initial increase.

Taylor Rule Formula

The central bank framework used to analyze interest rate settings based on inflation and output is known as the __________.

DD Schedule

The __________ schedule shows all combinations of output and the exchange rate for which the output market is in short-run equilibrium.

AA Schedule

The __________ schedule represents combinations of the exchange rate and output consistent with equilibrium in the domestic money market and foreign exchange market.

J-Curve Effect

The __________ describes the phenomenon where a current account balance worsens immediately after a real currency depreciation before eventually improving.

Liquidity Trap (ZLB)

A __________ occurs when the nominal interest rate hits the Zero Lower Bound (ZLB), making conventional monetary policy ineffective.

Purchasing Power Parity (PPP)

According to __________, the exchange rate between two countries' currencies equals the ratio of the countries' price levels.

Fisher Effect

The __________ states that a rise in a country's expected inflation rate will eventually cause an equal rise in the nominal interest rate.

Sterilization

When a central bank negates the effect of a foreign asset sale on the money supply by buying domestic assets, it is performing __________.

Impossible Trinity

The __________ theorem states that a country can only achieve two of the following: exchange rate stability, independent monetary policy, and free capital mobility.

Maastricht Fiscal Criteria

The Maastricht Treaty requires a maximum ratio of government deficit to GDP of __________% and a maximum ratio of government debt to GDP of __________%.

Optimum Currency Area Gain

The benefit a country reaps by joining a fixed exchange rate area, avoiding uncertainty and transaction costs, is called the __________.