AP Macroeconomics Unit 6

balance of payments (BOP) account

all transactions that countries’ individuals, governments, and businesses complete with same entities in other countries

current account (CA)

export net income

trade balance

net sum of current account

outflow of funds

money going out

inflow of funds

money coming in

capital and financial account (CFA)

transactions with future liabilities

exchange rate

price at which currencies from different countries are traded

foreign exchange market

electronic marketplace for international transactions

exchange rate regime

system to establish exchange rate against other countries

fixed exchange rate

country ties official exchange rate to another country’s

floating exchange rate

currency price determined by forex market (supply & demand)

dual (unofficial) exchange rate

official fixed for import/export, unofficial for specific goods

currency appreciation

value of country A increased compared to country B

currency depreciation

value in floating exchange rate regime falls

foreign exchange market

(forex or FX) virtual marketplace where exchange rates are set

exchange rate

based on supply and demand

equilibrium exchange rate

demand for money = money supplied

supply of currency

based on demand for imported goods

demand curve

slopes down

ssupply curve

slopes up

disequilibrium

deficit or surplus

demand for currency

result of demand for exports and investors looking to invest in the country

nominal exchange rate

rate of exchangee

real exchange rate

rate of exchange accounting for inflation (different between countries)

tariffs

tax on imported goods from other countries

Smoot-Hawley Act

increase tariffs by 60%

General Agreement on Tariffs and Trade (GATT)

minimized tariffs, quotas, and subsidies

import quota

non-tariff barrier

World Trade Organization (WTO)

oversee trade and mediate trade disputes

multinational corporations

companies based in more than 1 country

net exports

total exports minus total imports (X-M)

trade surplus

exports more than imports

trade deficit

buys more imported goods than exports

appreciates

rises in value

depreciates

decline in value

balance of trade

net exports

nominal interest rate

interest rate before being adjusted by inflation

real interest rate

interest rate accounting for inflation

open economy

countries that freely trade with little barriers

international capital flows

movement of monetary funds and financial capital between open economies

capital inflows

investors buy domestic assets from another country

capital outflow

domestic investors invest money in foreign assets