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26 Cards in this Set
- Front
- Back
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balanceof paymentsaccounts |
summarize its transactions with therest of the world. |
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balanceof payments on current account, or currentaccount |
is the balanceof payments on goods and services plus net international transferpayments and factor income. |
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balanceof payments on goods and services |
is the difference between exportsand imports during a given period. |
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merchandisetrade balance |
is the difference between acountry’s exports and imports of goods; it does not include services. |
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balanceof payments on financial account, or financial account |
is the difference between sales ofassets to foreigners and purchases of assets from foreigners during a givenperiod. |
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Balance of payments rule |
Thecurrent account must equal the financial account; the sourcesof cash must equal the uses of cash (total cash flow in = total cash flow out). |
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what ensures that the balance of payments really does balance? |
Theexchange rate, which is determined in the foreign exchange market. |
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Exchangerates |
the prices at which currenciestrade. |
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Currencyappreciation |
increasing value of one currency interms of other currencies. |
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Currencydepreciation |
loss of value of one currency interms of other currencies. |
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demand for foreign currencyslopes downward because.... |
when the euro price of the dollar falls (the dollar depreciates), U.S. goods arecheaper for Europeans, and they’ll need more U.S. dollars to pay forthem (and vice versa). |
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Real exchange rate |
exchange rate adjusted fordifferences in international differences in aggregate price levels |
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The Big Mac index looks at theprice of a Big Mac in local currency and computes the following |
the price of a Big Mac in U.S. dollars using theprevailing exchange rate. the exchange rate at which the price of a Big Macwould equal the U.S. price. |
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exchangerate regime |
is a rule governing policy for theexchange rate. |
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Fixed exchange rate |
rate that is held at or near aparticular target against some other currency. |
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Floating exchange rate |
rate that is allowed to go whereverthe market takes it. |
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Exchangemarket intervention |
Governmentbuys or sells currency in the foreign exchange market. |
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Foreignexchange reserves |
Governments maintain stocksofforeign currency to buy their own currency on the foreign exchange market |
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Foreignexchange controls |
Licensingsystems that limit the right of individuals to buy foreign currency.They usually increase the value of a currency. |
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Stable exchange |
ratesremove uncertainty forbusinesses. |
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Exchange market intervention |
requires large reserves,and exchange controls distort incentives. |
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Devaluation |
a reductionin the value of a currency that previously had a fixed exchange rate. |
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Revaluation |
an increasein the value of a currency that previously had a fixed exchange rate. |
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Devaluations and revaluationscan be used |
toeliminate shortages or surpluses in the foreignexchange market. astoolsof macroeconomic policy (to change AD). |
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Monetary policy under floating exchangerates
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Under floating exchange rates,expansionary monetary policy causes the currency to depreciate(and helps increase ADeven more).Contractionary monetary policy hasthe reverse effect. |
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International business cycles |
The fact thatone country’s imports are another country’s exports creates a link between thebusiness cycles in different countries. |
