AP Macroeconomics: Unit 6 Vocab

Balance of Payments (BOP)

a summary of a country’s transactions with other countries

Current Account (CA)

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

Trade Balance

the difference between the value of a country’s exports and imports, also referred to as a country’s net exports

Financial Account

the difference between a country’s sales of assets to foreigners and its purchases of assets from foreigners during a given time period

Capital Account

measures transfers of assets not included in the financial account

Capital and Financial Account (CFA)

includes both the financial and capital accounts and measures a country’s status as a net debtor or creditor to the rest of the world

Foreign Exchange Market

the market showing the supply and demand for currency. This is the market where foreign currencies are traded for one another

Exchange Rate

the price at which currencies are traded

Appreciation

when a currency becomes more valuable in terms of another currency

Depreciation

when a currency becomes less valuable in terms of another currency

Purchasing Power Parity

the nominal exchange rate at which a given basket of goods and services would cost in a different country

Real Exchange Rate

exchange rates adjusted for international differences in aggregate price levels

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

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

Protectionism

the practice of limiting trade to protect domestic industries

Tariff

a tax in imports (paid by the importer)

Import Quota

a limit on the quantity of a good that can be imported within a given time period