macro unit5/6

Appreciation

an increase in the value of a currency as measured by the amount of foreign currency it can buy

Balanced Trade

a situation in which exports equal imports

Capital Flight

a large and sudden reduction in the demand for assets located in a country

Catch-up Effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

Closed Economy

an economy that does not interact with other economies in the world

Depreciation

a decrease in the value of a currency as measured by the amount of foreign currency it can buy

Diminishing Returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

Exports

goods and services that are produced domestically and sold abroad

Human Capital

the knowledge and skills that workers acquire through education and on-the-job training

Imports

goods and services that are produced abroad and sold domestically

Natural Resources

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

Natural-rate Hypothesis

the claim that unemployment eventually returns to its normal, or natural, rate, regardless of the rate of inflation

Net Capital Outflow

the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

Net Exports

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

Nominal Exchange Rate

the rate at which a person can trade the currency of one country for the currency of another

Open Economy

an economy that interacts freely with other economies around the world

Phillips Curve

a curve that shows the short-run trade-off between inflation and unemployment

Physical Capital

the stock of equipment and structures that are used to produce goods and services

Productivity

the quantity of goods and services produced from each unit of labor input

Purchasing Power Parity

a theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries

Rational Expectations

the theory that people optimally use all the information they have, including information about government policies, when forecasting the future

Real Exchange Rate

the rate at which a person can trade the goods and services of one country for the goods and services of another

Sacrifice Ratio

the number of percentage points of annual output lost in the process of reducing inflation by percentage point

Supply Shock

an event that directly alters firms’ costs and prices, shifting the economy’s aggregate-supply curve and thus the Phillips curve

Technological Knowledge

society’s understanding of the best ways to produce goods and services

Trade Balance

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

Trade Deficit

an excess of imports over exports

Trade Surplus

an excess of exports over imports