IB Economics (Global)

International Trade

The exchange of goods and services between two countries

Trade Production

The use of trade barriers to safeguard an economy from excessive international trade and foreign competition

Tariff

A tax on imports to protect domestic industries from foreign competition and to raise revenue for the government

Quota

A quantitative limit on the importation of a good into a country

Subsidy

A payment made by the government to producers in order to help them compete against foreign firms

Economic Integration

The process of countries become more interdependent and economically unified

Preferential Trade Agreement

A trade treaty between two or more countries, giving special or favourable terms and conditions of trade to member countries

Trading Bloc

A group of countries that agree to economic integration and more international trade by reducing or removing trade barriers with one another

Free Trade Area

A type of trading bloc between member states that agree to trade freely with each other but can impose separate restrictions on non-member countries

Customs Union

A type of trading bloc between member states that agree to trade freely with each other but impose a common external tariff when trading with non-member countries

Common Market

The most integrated trading bloc, consisting of a customs union that allows the free movement of factors of production between member countries

Monetary Union

A form of economic integration characterized by a common market, a common currency, a common central bank and a common monetary policy

Exchange Rate

The price of one currency in terms of another

Floating Exchange Rate

An exchange rate system where the value of one currency in terms of another changes accoridng to the market forces of supply and demand

Appreciation

A sustained increase in the value of one currency in terms of another under a floating exchange rate system

Depreciation

A sustained decrease in the value of one currency in terms of another under a floating exchange rate system

Remittances

The transfer of money between foreign workers to individuals, often family members, in their home country

Inflation

A sustained increase in the general or average price level

Demand-pull inflation

Inflation that is caused by increasing aggregate demand in an economy

Cost-push inflation

Inflation that is caused by an increase in the costs of production in an economy

Fixed Exchange Rate

An exchange rate system where the value of one currency in terms of another is fixed or controlled by a monetary authority, such as the central bank

Devaluation

A decrease in the value of a currency in a fixed exchange rate system

Revaluation

An increase in the value of a currency in a fixed exchange rate system

Balance of Payments

A financial record of a country’s transactions with the rest of the world, usually over one year

Credit Items

Payments received from consumers, firms and institutions or governments located outside of the economy

Debit Item

Payments made to consumers, firms and institutions or governments located outside of the economy

Current Account

A record of the revenues earned from the export of goods and services and the expenditure on imported goods and services

Balance of Trade

The difference between a country’s total export earnings and its total import expenditure on both goods and services

Capital Account

A record of the different forms of capital inflows ad outflows of a country during a given time period

Financial Account

A record of the transactions that relate to the change in ownership of assets

Reserve Assets

Stocks of foreign currencies held by a central bank, usually to influence the value of its currency

Expenditure-switching policies

Policies implemented by the government that aim to switch the expenditure of domestic consumers away from imports towards domestically produced goods and services

Expenditure-reducing Policies

Policies implemented by the government that aim to reduce overall expenditure in the economy, including import expenditure

Poverty Trap

A cycle of poverty and deprivation causing even greater poverty, from one generation to the next