Unit 6: International Trade and Finance

Surplus

exports exceed imports; selling more than buying

Deficit

imports exceed exports; countries take out loans to pay off debt-IR increase so crowding out effect is seen; real GDP decreases

Current account (CA)

the transfer of consumer goods from one country to another

Capital and financial accounts (CFA)

The movement of physical/direct investments and financial assets

0

CA + CFA =

depreciation

exports increase, demand increase, supply decrease, aggregate demand (real GDP) increases

appreciation

imports increase, demand decreases, supply increases, aggregate demand (real GDP) decreases

Shortage

There is excessive demand for a currency and not enough supply in the market.

inflow

money coming into a country

outflow

money leaving a country

Crowding out effect

increased government spending, often financed through borrowing, can lead to a decrease in private sector investment and spending

exchange rate

the price of one currency in terms of another