Unit 6: Open Economy—International Trade and Finance

Tariffs

________ collect revenue for the government, while quotas do not.

Speculators

________ are betting on the dollar to rise in value.

Official reserves

________ account- The Feds adjustment of a deficit or surplus in the current and capital account by the addition or subtraction of foreign currencies so that the balance of payments is zero.

Capital

________ (or financial) account- This account shows the flow of investment on real or financial assets between a nation and foreigners.

Speculation

________- Foreign currencies can be traded as assets causing investors to seek to profit from buying currency at a low rate and selling it at a higher rate.

aggregate demand

When investment spending increases, ________ increases which raises the price level.

Exchange rate

________- The price of one currency in terms of a second currency.

central bank

If the ________ of a country is practicing a contractionary monetary policy (increasing the reserve ratio, increasing the discount rate, or selling bonds), it will affect the value of the exchange rate.

Revenue tariff

________- An excise tax levied on goods not produced in the domestic market.

FOREX Market

There are four determinants that can change either the supply or demand in the ________.

deficit balance

A(n) ________ tells us that the United States sent more American dollars abroad than foreign currency received in current transactions.

Determinants of exchange rates

________- External factors that increase the price of one currency relative to another.

Balance of payment

________ surplus- When more foreign currency was coming into the US than American dollars sent abroad.

government practices

When the ________ an expansionary fiscal policy (increase in spending or decrease in taxes), there is an effect on the exchange rate for that country's currency.

Relative incomes

________- When a nations macroeconomy is strong and incomes are rising, they increase their demand for all goods, including those produced abroad.

real interest rates

When ________ are high, it generates inbound capital flow.

injection of funds

It is the ________ into a domestic economy that occurs through the purchase of domestic assets by foreign investors.

extraction of funds

It is the ________ from a domestic economy that occurs through the purchase of foreign assets by domestic investors.

Consumer tastes

________- When domestic consumers build a stronger preference for foreign- produced goods and services, the demand for those currencies increases and the dollar depreciates.

aggregate demand

When investment spending decreases, ________ decreases which lower the price level.

exchange rate

As the ________ rises, domestic and foreign consumers will purchase less quantity of the currency.

FOREX Market

It is achieved in the ________ (the market in which foreign currency is bought and sold) when the quantity supplied of the currency equals the quantity demanded of the currency at a specific exchange rate.

revenue tariff

If a(n) ________ were levied on bananas, it would not be a serious impediment to trade, and it would raise a little revenue for the government.

government practices

When the ________ a contractionary fiscal policy (decreases spending or increases taxes), there is an effect on the exchange rate of that country's currency.

Current account

This account shows current import and export payments of both goods and services and investment income sent to foreign investors of the United States and investment income received by U.S. citizens who invest abroad

Capital (or financial) account

This account shows the flow of investment on real or financial assets between a nation and foreigners

Official reserves account

The Feds adjustment of a deficit or surplus in the current and capital account by the addition or subtraction of foreign currencies so that the balance of payments is zero

Balance of payments deficit

When the US has sent more dollars out than foreign currency has come in while adding the current and capital account

Balance of payment surplus

When more foreign currency was coming into the US than American dollars sent abroad

Exchange rate

The price of one currency in terms of a second currency

Determinants of exchange rates

External factors that increase the price of one currency relative to another

Consumer tastes

When domestic consumers build a stronger preference for foreign-produced goods and services, the demand for those currencies increases and the dollar depreciates

Relative incomes

When a nations macroeconomy is strong and incomes are rising, they increase their demand for all goods, including those produced abroad

Speculation

Foreign currencies can be traded as assets causing investors to seek to profit from buying currency at a low rate and selling it at a higher rate

Revenue tariff

An excise tax levied on goods not produced in the domestic market

Protective tariff

An excise tax levied on a good that is produced in the domestic market so that it may be protected from foreign competition

Import quota

A limitation on the amount of a good that can be imported into the domestic market

Appreciating or stronger currency

When the value of a currency is rising relative to another currency

Depreciating or weaker currency

When the value of a currency is falling relative to another currency