ap macro unit 6

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balance of payment accounts

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a summary of the country's transactions with other countries

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current account

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

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33 Terms

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balance of payment accounts

a summary of the country's transactions with other countries

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current account

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

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trade balance

gap between exports and imports

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capital and financial account

the inflow and outflow of funds that impact a country's foreign assets and liabilites

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current account is made up of:

  1. net exports
  2. investment income
  3. net transfers
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foreign direct investment

Investment made by a foreign company in the economy of another country

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net capital outflow

the difference between the purchase of foreign and domestic assets purchased by foreigners

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exchange rate

the price at which currencies from different countries are traded

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foreign exchange market

a market in which currencies of different countries are bought and sold

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exchange rate regime

the system a country uses to establish the exchange rate of its own currency against other currencies

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fixed exchange rate

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

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floating exchange rate

where a country's currency price is determined by the forex market

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dual exchange rate

a country uses an official fixed exchange rate for imports and exports and current account transactions

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currency appreciation

when the value of one country's currency increases in relation to another country's currency

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currency appreciation factors:

  1. consumer tastes
  2. relative inflation
  3. relative incomes
  4. relative interest rates
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currency depreciation

when the value of a currency in a floating exchange rate regime falls

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equilibrium exchange rate

the exchange rate where the demand for a currency is equal to the quantity of that currency being supplied

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supply of currency

based on a country's demand for imported goods from other countries

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disequilibrium

occurs when there is a deficit or surplus in a country's BOP

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demand for currency

a direct result of the demand for a country's export goods and investors looking to invest in the country

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nominal exchange rate

the rate of exchange that does not account for the difference in aggregate price levels for the same products in two different countries

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real exchange rate

the price of domestic goods in terms of foreign goods that accounts for inflation

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Smoot-Hawley Act

Increased tariffs in order to limit import competition during the Great Depression

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General Agreement on Tariffs and Trade (GATT)

a trade agreement that contained loopholes enabling countries to avoid trade-barrier reduction agreements

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World Trade Organization (WTO)

a permanent global institution to promote international trade and to settle international trade disputes

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multinational corporations

companies based in more than one country

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trade surplus

when a country exports more than it imports

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trade deficit

when a country imports more than it exports

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appreciation

an increase in value

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depreciation

a lessening in value

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international capital flows

movement of monetary funds and financial capital between open economies

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capital inflow

the net inflow of funds into a country

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capital outflow

domestic money invested abroad