Chapter 31: Open-Economy Macroeconomics: Basic Concept

Question 1

Open economy

Answer 1

An economy that interacts freely with other economies around the world

Question 2

Exports

Answer 2

Goods and services that are produced domestically and sold abroad

Question 3

Imports

Answer 3

Goods and services that are produced abroad and sold domestically

Question 4

Net exports

Answer 4

The value of a nations exports minus the value of its imports; also called the trade balance

Question 5

Trade balance

Answer 5

The value of a nations exports minus the value of its imports; also called the net exports

Question 6

Trade surplus

Answer 6

An excess of exports over imports

Question 7

Trade deficit

Answer 7

An excess of imports over exports

Question 8

Balanced trade

Answer 8

A situation in which exports equal imports

Question 9

Net capital outflow

Answer 9

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

Question 10

Closed economy

Answer 10

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

Question 11

NCO

Answer 11

NX

Question 12

Y

Answer 12

C+I+G+NX

Question 13

Y-C-G

Answer 13

I+NX

Question 14

S

Answer 14

I+NX

Question 15

S

Answer 15

I+NCO

Question 16

Nominal exchange rate

Answer 16

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

Question 17

Appreciation

Answer 17

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

Question 18

Depreciation

Answer 18

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

Question 19

Real exchange rate

Answer 19

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

Question 20

Real exchange rate

Answer 20

Nominal exchange rate * domestic price / foreign price

Question 21

Real exchange rate

Answer 21

(eXP)/P*

Question 22

Purchasing-power parity

Answer 22

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

Question 23

1/P

Answer 23

e/P*

Question 24

1

Answer 24

eP/P*

Question 25

e

Answer 25

P*/P