Chapter 15: Open Economy, International Trade, and Finance
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Last updated 3:03 PM on 4/8/23
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13 Terms
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Liquidity trap
when demand for money is flat → change in money supply does not affect interest rates.
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Arbitrage
buying low, selling high → profit.
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Depreciation
currency becomes weaker /loses value compared to other currencies.
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Appreciation
currency gains value compared to other currencies.
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Trade deficit
when imports exceed exports.
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Fixed exchange rate
changes in demand only affect quantity of dollars purchased.
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Balance of payments
statement of all international flows of money during a period of time
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Trade surplus
when exports exceed imports
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Flexible exchange rate
central bank can fix quantity of assets denominated in home currency
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Velocity of money (V)
number of times per period that average dollar is spent on final goods and services
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Quantity of money
Q is stable in addition to V
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Neutral rate of real interest
fluctuations in nominal interest rate reflect anticipated inflation
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Fisher effect
market participants predicted Fed will reduce money supply growth to counter inflation → causes inflation and nominal interest rates to fall
