Principles of Macroeconomics: Open-Economy Macroeconomics

These flashcards cover fundamental vocabulary related to open-economy macroeconomics based on the lecture notes.

Open economy

An economy that interacts freely with other economies around the world, buying and selling goods and services as well as capital assets.

Closed economy

An economy that does not interact with other economies in the world.

Net exports (NX)

The value of a nation's exports minus the value of its imports.

Trade surplus

A situation where exports are greater than imports.

Trade deficit

A situation where imports are greater than exports.

Balanced trade

A situation in which exports equal imports (NX=0).

Purchasing-power parity (PPP)

Theory that a currency must have the same purchasing power in all countries.

Nominal exchange rate

The price at which one currency exchanges for another currency.

Real exchange rate

The relative price of U.S.-produced goods to foreign-produced goods.

Net capital outflow (NCO)

The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners.

Law of one price

Identical goods should sell for the same price in all markets.

Arbitrage

The practice of buying and selling to take advantage of price differences for the same item in different markets.

Exchange rate appreciation

A rise in the value of one currency in terms of another currency.

Exchange rate depreciation

A fall in the value of one currency in terms of another currency.

Savings

The portion of income not spent on consumption.

Investment

The purchase of goods that are not consumed today but are used in the future to create wealth.

U.S. trade balance

Represented by the balance of exports and imports that can influence the economy.