AP Macroeconomics Unit 6 Vocabulary

Balance of Payment Accounts

The method in which countries keep track of their transactions with other countries.

Current Account

A country's net export over a period of time.

Outflow of Funds

Funds that are going from the country receiving the products to the country that is producing them.

Inflow of Funds

Funds that are flowing into the manufacturing country from the country purchasing the goods or services.

Capital and Financial Account

The measurement of a country's inflows and outflows of funds that impact their foreign assets and liabilities.

BOP Equation

Current Account (CA) + Capital Finance Account (CFA) = 0

Trade Balance

The value of a nation's exports minus the value of its imports; also called net exports

Exchange Rates

The price at which currencies from different countries are traded.

Fixed Exchange Rate

When a country ties its official exchange rate to another country's currency.

Exchange Rate Regime

The part of a country that controls the exchange rate of that nations currency with other nations.

Floating Exchange Rate

The currency's price is dictated by the forex market, which is based on supply and demand.

Dual Exchange Rates

A country will use one exchange rate of official imports and exports but a different rate for some specific goods.

Currency Appreciation/Depreciation

When the value of a country's currency changes relative to that of another country.

Foreign Exchange Market

Also called the forex, FX, or the currency market

Equilibrium Exchange Rate

The rate where demand for U.S. dollars and supply of U.S. dollars is equal.

Supply of Currency

Based on a country's demand for imported goods from another country.

Disequilibrium

Occurs when there is a deficit for a surplus in a country's balance payments.

Demand for Currency

A direct result of a country's exported goods and investors looking to invest in the country.

Nominal Exchange Rate

The rate of exchange that does not account for the difference in aggregate price levels (inflation) for the same product in two different countries.

Real Exchange Rate

The rate of exchange that accounts for the change in aggregate price level (inflation) for the same product in two different countries.

Tariff

A tax on imported goods from other countries.

Smoot

Hawley Act

General Agreement on Tariffs and Trade (GATT)

Signed by 23 nations to remove as many barriers to trade as possible such as tariffs, quotas, and subsidies.

World Trade Organization (WTO)

Created to oversee trade and settle disputes between countries.

Multinational Corporations

Companies based in more than one country.

Currency Appreciation

An increase in the value of one currency relative to another.

Currency Depreciation

A decrease in the value of one currency relative to that of another.

International Capital Flows

The movement of monetary funds and financial capital between open economies.

Capital Inflow

When investors buy domestic assets from another country.

Capital Outflow

When investors invest their money in foreign assets.