Chapter 31: Open-Economy Macroeconomics: Basic Concepts Flashcards
Closed economy
An economy that doesn’t interact with other economies
Open economy
An economy that interacts with other economies
Exports
GnS produced domestically and sold abroad
Imports
GnS produced in foreign countries and sold domestically
Net exports
The value of exports minus the value of imports or the trade balance
Trade surplus
The amount by which exports exceed imports
Trade deficit
The amount by which imports exceed exports
Balanced trade
A situation in which exports equal imports
Net capital outflow
The purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners
Nominal exchange rate
The rate at which people can trade one currency for another currency
Appreciation
An increase in the value of a currency measured in terms of other currencies
Depreciation
A decrease in the value of a currency measured in terms of other currencies
Real exchange rate
The rate at which people can trade the goods and services of one country for those of another country
Purchasing power parity
The theory that a unit of a country’s currency should buy the same quantity of goods in all countries
Arbitrage
Taking advantage of two prices for the same commodity by buying where it is cheap and selling where it is expensive
