Chapter 10 Flashcards
the advantage that comes from producing something at a lower opportunity cost than others are able to do
comparative advantage
the average price of a country’s exports compared with the price of its imports
terms of trade
the economic policy of protecting domestic producers by restricting the importation of foreign products
protectionism
a limit imposed on the production or sale of a product
quota
a tax (duty) levied on imports
tariff
government restrictions limiting the amount of foreign currencies that can be obtained
currency exchange controls
an agreement by an exporting country to restrict the amount of its exports to another country
voluntary export restriction
the rate at which one currency is exchanged for another
exchange rate
the rise in the exchange rate of one currency for another
currency appreciation
the fall in the exchange rate of one currency for another
currency depreciation
a currency exchange rate determined by the market forces of supply and demand and not interfered with by government actions
flexible exchange rate
a currency exchange rate pegged by government and therefore prevented from raising or falling
fixed exchange rate
a theory suggesting that exchange rates will change so as to equate the purchasing power of each currency
purchasing power parity theory
the process of buying a commodity in one market, where the price is low, and immediately selling it in a second market where the price is higher
arbitrage
the purchase of real assets
direct investment
the purchase of shares or bonds representing less than 50 percent ownership
portfolio investment
a payment by government for the purpose of increasing some particular activity or increasing the output of a particular good
subsidy
the refixing by government of an exchange rate at a lower lever
devaluation
an exchange rate that is not officially fixed by government but is managed by the central banks ongoing intervention in the market
dirty float
an accounting of a country’s international transactions that involves the payment and receipt of foreign currencies
balance of payment
a subcategory of the balance of payment that shows the income or expenditure related to exports and imports
current account
a subcategory of the balance of payment that reflects changes in ownership of assets associated with foreign investment
capital account
a subcategory of the balance of payments that shows the change in a country’s official foreign exchange reserve
official settlements account
the value of a country’s exports of goods and services less the value of its imports
balance of trade
income (wages, interest, dividend) that nationals receive from providing their services to another country
foreign factor income
the idea that when a government borrows to finance a deficit, it crowds out private investment because it causes interest rates to rise
crowding-out effect
a curve that illustrates the inverse relationship between unemployment and inflation rates
phillips curve
the simultaneous occurrence of high inflation and unemplyment
stagflation
the graphical representation of the idea that in terms of tax revenue, there is an optimal tax rate; above or below this rate, tax revenue would be lower
laffer curve
a decrease in the overall price level
deflation
the proposition that “supply creates its own demand” that is, production (supply) creates sufficient income and thus spending (demand) to purchase the production (attributed to french economist Jean-Baptiste
Say’s law
a financial instrument whose value is derived from some other fixed-return asset
derivative
a financial institution that assists corporations and governments in raising money by acting as their agent in selling new bonds to the public
investment bonds
an unregulated investment fund that is open only to a limited range of investors who pay a performance fee to the funds managers
hedge fund
a mortgage made to a borrower with a low credit rating that carries a higher interest rate than that charged to a conventional borrower
sub-prime mortgage
