Unit 6 - Open Economy - International Trade and Finance Vocabulary

A comprehensive list of vocabulary terms related to Open Economy, International Trade and Finance, complete with definitions as per AP Macro concepts.

Marginal Propensity to Consume

The proportion of any additional income that is spent, influencing how households allocate their income in consumption.

Marginal Propensity to Save

The proportion of any additional income that is saved, impacting future spending and investment decisions.

Current Account

Includes transactions that don't create liabilities, reflecting a country's foreign trade balance.

Capital and Financial Account

Includes transactions that create liabilities, showing how a country finances its capital needs.

Balance of Payments

Overview of current account and capital and financial account, summarizing all economic transactions.

Exchange Rate

The price of one currency in terms of another, affecting international trade and investment.

Currency Appreciation

The increase in the value of a country's currency relative to another in the foreign exchange market.

Currency Depreciation

When a country’s currency loses value compared to other currencies, influencing import and export dynamics.

Foreign Exchange Market

Where currencies are bought and sold, crucial for international trade and investment.

Tariffs

A tax placed on imported goods, used to protect domestic industries from foreign competition.

Quotas

A limit on the amount of a good that can be imported, aimed at regulating foreign trade.

Spending Multiplier

Shows how much total spending increases when the government increases spending, amplifying economic impact.

Fiscal Policy

Controlled by Congress and the president, it describes the use of government spending or tax policy to influence the economy.

Monetary Policy

Uses changes in the available quantity of money to change interest rates, influencing investment and consumer spending.

Federal Reserve System

The United States Central Bank, responsible for regulating monetary policy and stabilizing the economy.

Consumption Function

The relationship between income and consumer spending, indicating how income levels affect consumption choices.

Planned Investment Spending

The amount firms plan to spend on capital goods like factories and equipment, impacting economic growth.

Unplanned Inventory Investment

The unexpected change in a firm's stock of goods, occurring when actual sales differ from forecasts.

Aggregate Demand

The total amount of spending on domestic goods and services in an economy, vital for economic health.

Aggregate Supply

The relationship between price level and the quantity of goods and services that are supplied in the economy.

Consumption

The total spending by households on final goods and services, driving economic activity.

Sticky Wage and Price Model

When wages don’t adjust to the economy, potentially causing unemployment or economic inefficiencies.

Potential Output

The maximum amount an economy can produce when using all resources efficiently, indicating economic capacity.

Output Gap

The difference between actual output and potential output, showing economic underperformance or overperformance.

Stabilization Policy

Government actions to smooth out the economy, aimed at reducing recessions or inflation.

Social Insurance

Government programs that provide financial support during hardship, promoting economic stability and security.

Leakage

Money that leaves the circular flow of the economy, impacting overall economic performance.

Say’s Law

The idea that supply creates its own demand, suggesting that production inherently creates the means for consumption.

Tax Multiplier

The effect that a change in taxes has on total economic output, illustrating fiscal policy impact.

Automatic Stabilizers

Policies that automatically help stabilize the economy without new laws, such as unemployment benefits.