AP Econ Unit 6 Vocab

Balance of Payments Accounts

A summary of a country’s transactions with other countries, including two main elements: the balance of payments on the current account and the balance of payments on the financial account. The current account and financial account must sum to zero.

Current Account

A country’s balance of payments on goods and services plus net international transfer payments and factor income

Balance of Payments on Goods and Services

The difference between the value of exports and the value of imports during a given period

Merchandise Trade Balance (Trade Balanace)

The difference between a country’s exports and imports of goods alone, not including services

Financial Account

The difference between a country’s sales of assets to foreigners and its purchase of assets from foreigners in a given period

Foreign Exchange Market

The market in which currencies are traded

Exchange Rates

The price at which currencies trade, determined by the foreign exchange market

Appreciation

A rise in the value of one currency in terms of other currencies

Depreciation

A fall in the value of one currency in terms of other currencies

Equilibrium Exchange Rate

The exchange rate at which the quantity of a currency demanded in the foreign exchange market is equal to the quantity supplied

Real Exchange Rate

The exchange rate adjusted for international differences in aggregate price levels

Purchasing Power Parity

The nominal exchange rate at which a given basket of goods and services would cost the same amount in each country

Exchange Rate Regime

A rule governing policy toward the exchange rate

Fixed Exchange Rate

An exchange rate regime in which the government keeps the exchange rate against some other currency at or near a particular target

Floating Exchange Rate

An exchange rate regime in which the government lets the exchange rate go wherever the market takes it

Exchange Market Intervention

Government purchases or sales of currency in the foreign exchange market

Foreign Exchange Reserves

Stocks of foreign currency that governments can use to buy their own currency on the foreign exchange market

Foreign Exchange Controls

Licensing systems that limit the right of individuals to buy foreign currency

Devaluation

A reduction in the value of a currency that is set under a fixed exchange rate regime

Revaluation

An increase in the value of a currency that is set under a fixed exchange rate regime