International Economics

Question 1

Free trade

Answer 1

An explanation that it is international trade that takes place without any protectionism (trade barriers: tariffs, quotas, embargo..)

Question 2

Absolute Advantage

Answer 2

Exists when a country is able to produce a good more cheaply in absolute terms than another country.

Question 3

Balance of trade

Answer 3

Visible exports minus visible imports.

Question 4

Monetary policy

Answer 4

the attempt by government or a central bank to manipulate the money supply, the supply of credit, interest rates or any other monetary variables, to achieve the fulfilment of policy goals such as price stability.

Question 5

WORLD TRADE ORGANIZATION (WTO)

Answer 5

An organization aimed at liberalizing trade by facilitating the reduction or elimination of trade barriers between member states.

Question 6

Common market

Answer 6

A group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.

Question 7

Balance of payments account

Answer 7

A record of all financial dealings over a period of time between economic agents of one country and all other countries.

Question 8

Barter

Answer 8

Swapping one good for another without the use of money.

Question 9

Bretton Woods System

Answer 9

An adjustable peg exchange rate system which was used in the post-Second World War period until its collapse in the early 1970s.

Question 10

Exchange rate system

Answer 10

a system which determines the conditions under which one currency can be exchanged for another.

Question 11

Common external tariff

Answer 11

a common tariff set by a group of countries imposed on imported goods from non-member countries.

Question 12

Comparative Advantage

Answer 12

Exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country. In other words, the country has lower opportunity cost of production than the other country in question.

Question 13

Capital and financial accounts

Answer 13

that part of the balance of payments account where flows of savings, investment and currency are recorded

Question 14

Voluntary unemployment

Answer 14

workers who choose not to accept employment at the existing wage rate.

Question 15

Adjustable Peg System

Answer 15

An exchange rate system where currencies are fixed in value in the short term but can be devalued or revalued in the longer term.

Question 16

Quota

Answer 16

a physical limit on the quantity, value or volume of imported products (in international economics)

Question 17

Embargo

Answer 17

An extreme quota. A government order that will restrict all trade with a country, or aim to reduce the exchange of specific goods.

Question 18

Tariff

Answer 18

A tariff is a tax levied by the government on imported goods and services.

Question 19

Subsidy

Answer 19

a grant given which lowers the price of a good, usually designed to encourage production or consumption of a good and lower the cost of production per unit.

Question 20

Dumping

Answer 20

the sale of goods at less than cost of production by foreign producers in the domestic market.

Question 21

Currency board system

Answer 21

a fixed exchange rate system where a country fixes the value of its currency to another currency. Notes and coins in the domestic currency can only be printed to the value of assets in the other currency held by the central bank.

Question 22

Devaluation

Answer 22

is when a country’s currency is devalued when it is expressed or exchanged with another currency.

Question 23

Depreciation

Answer 23

is a decrease in the exchange rate value of a currency.

Question 24

Appreciation

Answer 24

is an increase in the exchange rate value of a currency in terms of another currency in a floating system.

Question 25

floating exchange rate

Answer 25

where the value of a currency is determined by free market forces.

Question 26

Purchasing Power Parity (PPP)

Answer 26

it is a theory that argues that in the long run exchange rates should move towards levels that would equalize the prices of an identical basket goods and services bought in either of the two countries of which their exchange rates are being compared.

Question 27

Bretton Woods system

Answer 27

an adjustable peg exchange rate system which was used in the post-Second World War period until its collapse in the early 1970s

Question 28

Balance of payments account

Answer 28

a record of all financial dealings over a period of time between economic agents of one country and all other countries.

Question 29

Balance of trade

Answer 29

visible exports minus visible imports

Question 30

Bretton Woods system

Answer 30

an adjustable peg exchange rate system which was used in the post-Second World War period until its collapse in the early 1970s

Question 31

Current account deficit or surplus

Answer 31

a deficit exists when imports are greater than exports; a surplus exists when exports are greater than imports.

Question 32

Central bank

Answer 32

the financial institution in a country or group of countries typically responsible for the printing and issuing of notes and coins, setting short term interest rates, managing the country’s gold and currency reserves and issuing government debt.

Question 33

Common external tariff

Answer 33

a common tariff set by a group of countries imposed on imported goods from non-member countries.

Question 34

Common market

Answer 34

A group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.

Question 35

Comparative advantage

Answer 35

Exists when a country is able to produce a good more cheaply relative to other goods produced domestically than another country. In other words, the country has lower opportunity cost of production than the other country in question.

Question 36

Customs union

Answer 36

A type of trade bloc which is composed of a free trade area with a common external tariff.

Question 37

Embargo

Answer 37

An extreme quota. A government order that will restrict all trade with a country, or aim to reduce the exchange of specific goods

Question 38

Exchange rate system

Answer 38

A system which determines the conditions under which one currency can be exchanged for another.

Question 39

Free trade

Answer 39

An explanation that it is international trade that takes place without any protectionism (trade barriers: tariffs, quotas, embargo..

Question 40

Fixed exchange rate

Answer 40

a rate of exchange between at least two currencies which is constant over a period of time.

Question 41

Currency bloc

Answer 41

a group of currencies which are fixed in value against each other but which may float freely against other world currencies.

Question 42

Devaluation and revaluation

Answer 42

a fall or rise in the value of the currency when the currency is pegged against other currencies.

Question 43

Foreign Direct Investment (FDI)

Answer 43

Investment of foreign assets in domestic infrastructure, equipment and organizations. e.g: Aramco investing in oil refinery in Nigeria.

Question 44

Gross Domestic Product (GDP)

Answer 44

refers to the net value of all goods and services produced and consumed within a country over a given time period (usually a year). E.g: The GDP of the U.S is over $15 Trillion annually, which is currently the largest in the world.

Question 45

Inflation

Answer 45

The persistent in the average price level in the economy.

Question 46

Exchange Controls

Answer 46

Controls on the purchase and sale of foreign currency by a country, usually through its central bank.